Answer:
1. Weighted average number of outstanding shares = 150,000*12/12 + 15,000*6/12 + 15,000*2/12
Weighted average number of outstanding shares = 150,000 + 7,500 + 2,500
Weighted average number of outstanding shares = 160,000 shares
2. Net income = $770,000
Preferred dividend = 20,000 shares*$100*7%
Preferred dividend = $140,000
Income attributable to common stockholders = Net income - Preferred dividend
Income attributable to common stockholders = $770,000 - $140,000
Income attributable to common stockholders = $630,000
Basic Earnings per share = Income attributable to common stockholders / Weighted average number of outstanding shares
Basic Earnings per share = $630,000/160,000
Basic Earnings per share = $3.94
3. Diluted EPS = Net income / [Weighted average number of common shares outstanding during the period + All dilutive potential common stock]
Diluted EPS = $770,000 / (160,000 + 20,000*2)
Diluted EPS = $770,000 / 200,000 shares
Diluted EPS = $3.85 per share
