Question

As part of its executive compensation plan, Vertovec Inc. granted 30,000 of its no par common shares to executives, subject to forfeiture if employment is terminated within three years. Vertovec’s common shares have a market price of $5 per share on January 1, 2017, the grant date of the restricted stock award, as well as on December 31, 2018. 500,000 shares were outstanding at January 1, 2018. Net income for 2018 was $140,000.

Required:

Compute Vertovec’s basic and diluted earnings per share for the year ended December 31, 2018

Answer 1

	Basic earnings per share:-
=	[(Net Income - Preferred Dividends)/Weighted average common shares outstanding)]
=	[(140,000- 0) / (500,000)
=	0.28
	Diluted earnings per share:-
=	(Net Income - Preferred Dividends) / (Weighted average common shares outstanding+ Potentially dilutive common shares)
=	[(140,000-0) / (500,000+10,000)]
=	0.27
	Potentially dilutive common shares
	Total compensation (30,000*5) = 150,000
	Unexpensed compensation on December 31,2018 = (150,000/3) = 50,000
	Potentially dilutive common shares = (50,000/5) = 10,000