Answer:
earnings per share = (net income - preferred dividends) / weighted common stocks = ($900,000 - $32,000) / 424,000 shares = $2.05 per share
diluted earnings per share = (net income - preferred dividends) / (weighted average + diluted shares) = ($900,000 - $32,000) / (424,000 + 3,000) = $2.03
Explanation:
Dec. 2017 outstanding common stocks 400,000
outstanding preferred stocks 40,000 x 8% x $10 = $32,000
February 28, 36,000 common stocks were issued
September 1, 9,000 shares were retired
diluted shares 30,000, exercise price $18, market price $20
net income $900,000
weighted common stocks:
400,000 x 12/12 = 400,000
36,000 x 10/12 = 30,000
- 9,000 x 8/12 = -6000
total = 424,000
diluted stocks:
[($20 - $18) / $20] x 30,000 = 3,000 diluted shares
