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Stanley Department Stores reported net income of $900,000 for the year ended December 31, 2021. Additional...

Stanley Department Stores reported net income of $900,000 for the year ended December 31, 2021. Additional Information: Common shares outstanding at Jan. 1, 2021 130,000 Incentive stock options (vested in 2020) outstanding throughout 2021 36,000 (Each option is exercisable for one common share at an exercise price of $27.00) During the year, the market price of Stanley’s common stock averaged $32.40 per share. On Aug. 30, Stanley sold 15,000 common shares. Stanley’s only debt consisted of $44,000 of 10% short-term bank notes. The company’s income tax rate is 25%. Required: Compute Stanley’s basic and diluted earnings per share for the year ended December 31, 2021. (Enter your answers in thousands. Do not round intermediate calculations)

Numerator/ Denominator =EPS
Basic
Diluted
Business   Accounting   
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Answer #1

Basic EPS is calculated as:

Basic EPS=Net Income/Weighted average outstanding shares

130,000+15,000*4/12=130,000+5,000=135,000

Basic EPS=$900,000/135,000

Basic EPS=$6.67

Diluted EPS is calculated as:

Net income=$900,000

Treasury stock
Exercised 36,000*27 = 972,000

Stock at average market price=972,000/32.40=30,000

Number of shares (36,000-30,000)=6,000
Weighted average outstanding shares=135,000

Diluted shares=6,000

Diluted EPS=Net Income/Weighted average outstanding shares+Diluted shares
Diluted EPS=$900,000/135,000+6,000

Diluted EPS=$900,000/141,000

Diluted EPS=$6.38

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