Question

Financial Education Corporation earned net income of $153,400 and paid the minimum dividend to preferred stockholders...

Financial Education Corporation earned net income of $153,400 and paid the minimum dividend to preferred stockholders for 2018. Assume there are no changes in common stock outstanding during 2018. FINEDCO, as it is called, has the following balances in its financial accounting system:

Preferred Stock – 6%, $60 par value, 2,000 shares authorized, 1,000 shares issued and outstanding $ 60,000

Common Stock - $5 par value; 80,000 shares authorized, 48,000 shares Issued and outstanding 240,000

Paid-in-capital – common shares 460,000

Retained earnings 500,000

Total $ 1,260,000

FINEDCO has granted 20,000 shares in the form of stock options to its senior management personnel. It also has a stockholder who loaned the company $500,000 but who demanded and received an option to turn in his loan papers in exchange for 20,000 shares.

REQUIRED: Compute Earnings per share and also fully diluted earnings per share.

Business   Accounting   
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Answer #1
Net income 153400
Less: Prefered Dividend 3600 (60000*6%)
Earning available for common stock holders 149800
No. of common stock outstanding 48000
EPS(Earning available for common stockholders/NUMBER OF COMMON STOCK OUTSTANDING) 3.12
(149800/48000)
Diluted earning per share
Number of common stock outstanding 48000
Add: Stock option to senior management 20000
Add: Stock option for loan 20000
Total stock 88000
Earning available for common stock holders 149800
Diluted earning per share=Earning for common stock/total common stock including all options assumed exercised) 1.70 (149800/88000)
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