Question

On December 31, 2017, Jackson Company had 100,000 shares of common stock outstanding and 34,000 shares of 5%, $50 par, cumulative preferred stock outstanding. On February 28, 2018, Jackson purchased 28,000 shares of common stock on the open market as treasury stock for $39 per share. Jackson sold 6,400 treasury shares on September 30, 2018, for $41 per share. Net income for 2018 was $184,905. Also outstanding during the year were fully vested incentive stock options giving key personnel the option to buy 54,000 common shares at $44. The market price of the common shares averaged $43 during 2018.

Required:
Compute Jackson's basic and diluted earnings per share for 2018. (Round your answers to 2 decimal places.)

Answer 1

Basic EPS

Basic EPS = Net Income available to common stock holders / Weighted average number of shares

Net Income available to common stock holders = [$184,905 - (5% x $50 x 34,000)] = $99,905

Weighted average number of shares =[100,000 - (28,000 x 10/12) + (6,400 x 3/12)]

= 78267 Shares

BASIC EPS = $99,905 / 78267 Shares = $1.28 per share

Diluted EPS

Net Income available to common stock holders = [$184,905 - (5% x $50 x 34,000)] = $99,905

Weighted average number of shares =[100,000 - (28,000 x 10/12) + (6,400 x 3/12) + (54,000 - 55256*)]

= 77011 Shares

Diluted EPS = $99,905 / 77011 Shares = $1.30 per share

**** (54,000 x $44)/$43 = 55256 Shares