Question

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)

Answer 1

Ques 1
Net Income (A)	900000
Denominator
1/1-12/31	130,000	12/12	130000
8/31-12/31	15000	4/12	5000
Weighted average shares (B)			135000
Basic EPS (A/B)	$    6.67
Ques 2
Net Income (A)	900000
Denominator
1/1-12/31	130,000	12/12	130000
8/31-12/31	15000	4/12	5000
Weighted average shares			135000
Treasury Stock
Exercise	972000
36000*27
Stock at average market price	30000
972000/32.4
No of shares	6,000
Total Shares (B)			141,000
Basic EPS (A/B)	$    6.38