Question

Metlock Corporation reported net income of $445,050 in 2020 and had 198,000 shares of common stock outstanding throughout the year. Also outstanding all year were 45,000 options to purchase common stock at $12 per share. The average market price of the stock during the year was $15. Compute diluted earnings per share. (Round answer to 2 decimal places, e.g. 3.55.)

Answer 1

$2.15

Step-by-step explanation:

The computation of diluted earnings per share is shown below:-

Diluted earnings per share = Net income attributable to common stockholder ÷ Diluted weighted number of shares

= $445,050 ÷ 207,000 shares

= $2.15

Working note 1:-

Common stock outstanding 198,000

Add: Convertible options 9,000

Weighted average number of shares 207,000

Working note 2:-

Total option available (a) 45,000

Purchase price per share (b) $12

Average market price per share (c) $15

Number of shares that can be purchased

d = (a × b) ÷ c $36,000

Convertible options (a - d) $9,000