Question

On January 1, 2018, Tonge Industries had outstanding 680,000 common shares ($1 par) that originally sold for $20 per share, and 4,000 shares of 10% cumulative preferred stock ($100 par), convertible into 40,000 common shares.

On October 1, 2018, Tonge sold and issued an additional 20,000 shares of common stock at $35. At December 31, 2018, there were 21,000 incentive stock options outstanding, issued in 2017, and exercisable after one year for 21,000 shares of common stock at an exercise price of $32. The market price of the common stock at year-end was $50. During the year, the price of the common shares had averaged $42.

Net income was $820,000. The tax rate for the year was 40%.

What is basic and diluted EPS?

Answer 1

Dividend on preference shares - 4000*100*10%					40000
Net Income after preference dividend				820000-40000	780000
No of Shares, Beginning					680000
New Shares issued - 20000*3/12					5000
Weighted average stock					685000
Basic EPS = 780000/685000					1.14
Shares Repurchased
Amount Received on exercise of shares					672000
(21000*32)
Market Price of common share					50
Shares Repurchased					13440
Net Increase in Shares (21000-13440)					7560
Diluted EPS = 780000/(685000+7560)					1.13