Question

Waterway Industries had net income for 2021 of $602000. The average number of shares outstanding for the period was 208000 shares. The average number of shares under outstanding options, at an option price of $30 per share is 12600 shares. The average market price of the common stock during the year was $36. What should Waterway Industries report for diluted earnings per share for the year ended 2021?

Answer 1

Diluted earnings per share is $2.87

Step-by-step explanation:

The extent to which the option would dilute the earnings per share to the extent of the difference between the option of price and the share market price.

The shares that are capable of dilute the earnings can be computed thus:

Market price-option price/market price*outstanding options shares

market price is $36

option price is $30

outstanding options shares is 12,600

($36-$30)/$36*12,600=2,100 shares

Diluted earnings per share=$602,000/(208,000+2100)=$2.87