Question

On December 31, 2020, Brisbane Company had 100,000 shares of common stock outstanding and 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2021, Brisbane purchased 24,000 shares of common stock on the open market as treasury stock paying $40 per share. Brisbane sold 6,000 treasury shares on September 30, 2021, for $45 per share. Net income for 2021 was $180,905. Also outstanding during the year were fully vested incentive stock options giving key officers the option to buy 50,000 common shares at $40. The market price of the common shares averaged $50 during 2021.
Required:
Compute Brisbane's basic and diluted earnings per share for 2021.

Answer 1

Answer:

Brisbane Company

1. Brisbane's basic earnings per share for 2021 is:

= $0.93.

2. Brisbane's diluted earnings per share for 2021 is:

= $0.58.

Explanation:

a) Data and Calculations:

December 31, 2020:

Common stock outstanding = 100,000

7%, $50 par, Cumulative preferred stock = 30,000

Treasury stock on February 28 = 24,000

Resale of treasury stock on Sept 30 = 6,000

December 31, 2020:

Common stock outstanding = 82,000 (100,000 - 24,000 + 6,000)

Net income for 2021 = $180,905

Preferred stock dividends = $105,000 (30,000 * $50 * 7%)

Earnings for common stockholders = $75,905 ($180,905 - $105,000)

Stock options for key officers = 50,000

Basic earnings per share = $75,905/82,000 = $0.93

Diluted earnings per share = $75,905/(82,000 + 50,000) = $0.58