Question

Marsh Co. had 2,400,000 shares of common stock outstanding on January 1 and December 31, 2013. In connection with the acquisition of a subsidiary company in June 2012, Marsh is required to issue 100,000 additional shares of its common stock on July 1, 2014, to the former owners of the subsidiary. Marsh paid $300,000 in preferred stock dividends in 2013, and reported net income of $5,100,000 for the year. Marsh's diluted earnings per share for 2013 should be

Answer 1

Diluted EPS= $1.92

Step-by-step explanation:

Diluted Earnings Per Share

Diluted Earning Per Shares is a measure of analysis used to determine the the quality of a company's Earnings Per Share after all convertible securities including warrants and outstanding convertible preferrence shares among others have been exercised.

Earning Per Shares on the Other hand measurs a company's profit per share without any recourse to convertible securities outstanding

The forumla for diluted Earnings Per Share

(Net Income- Dividend on Preference Stock)÷ (Outstanding Shares+ Diluted Shares)

The Net Income for the Year=$5,100,000

Dividend on Pref. Stock=$300,000 (Paid by Marsh in 2013)

Outstanding Shares=2,400,000 Common Stock

Diluted Shares= 100,000 additional shares to be issued on July 1, 2014

The Diluted EPS= (5,100,000-300,000)÷ (2,400,000+ 100,000)

=4,800,000÷ 2,500,000

=1.92