Question

Oriole Company purchased Sandhill Co, and agreed to give stockholders of Sandhill Co. 50000 additional shares in 2023 if Sandhill Co's net income in 2022 is $600000 or more; in 2021 Sandhill Co's net income is $610000. Oriole has net income for 2021 of| $1504000 and has an average number of common shares outstanding for 2021 of 501000 shares. What should Oriole report as earnings per share for 2021?

Basic Earnings Per Share Diluted Earnings Per Share
a. $2.73 $3.00
b. $3.00 $3.00
c. $2.73 $2.73
d. $3.00 $2.73

Answer 1

Oriole Company should report earnings per share (EPS) of $3.00 for both basic and diluted EPS for the year 2021, leading to the correct answer being option B.

Step-by-step explanation:

When determining earnings per share (EPS) for Oriole Company, we must first calculate the basic EPS. The basic EPS is found by dividing the company's net income by the weighted average number of common shares outstanding.

For basic EPS, the calculation is as follows:

Basic EPS = Net income / Average number of common shares outstanding

Using the data provided:

Basic EPS = $1,504,000 / 501,000 shares

Basic EPS = $3.00

For diluted EPS, we need to account for potential shares that could be issued in the future. In this case, if Sandhill Co's net income in 2022 is $600,000 or more, 50,000 additional shares will be issued in 2023. However, since the net income in 2022 has not been provided and the threshold has not yet been met, the diluted EPS for 2021 is not affected and remains the same as the basic EPS.

Thus, the diluted EPS for 2021 also is $3.00. Therefore, Oriole Company should report $3.00 for both basic and diluted EPS for 2021.

The correct answer to the question is Option B: $3.00 $3.00.