Question

Bedard Corporation reported net income of $300,000 in 2014 and had 200,000 shares of common stock outstanding throught the year. Also outstanding all year were 45,000 options to purchase common stock at $10 per share. The average market price of the stock during the year was $15. Compute diluted earnings per share.

Answer 1

Diluted EPS is $1.30

Step-by-step explanation:

Diluted earning per share is calculated by adjusting all the convertible share options or securities in the outstanding share.

According to given data

Net Income for the year = $300,000

Outstanding shares = 200,000 shares

Outstanding Option value = 45,000 x $10 = $450,000

Number of shares to be converted = $450,000 / $15 = 30,000 shares

Outstanding shares after adjusting options = 200,000 + 30,000 = 230,000 shares

Diluted EPS = Net Income / Outstanding share after adjustment

Diluted EPS = $300,000 / 230,000 = $1.30