Question

At December 31, 2012, Destin Sports Equipment had 200,000 common shares issued and outstanding. On May 31, 2013, Destin issued a 15% stock dividend. Fully vested, incentive stock options issued in 2011 and exercisable for 40,000 shares (adjusted for the stock dividend) were outstanding at the end of 2013, with an exercise price of $40 per share. The market price of Destin’s common stock averaged $50 per share during 2013. Also outstanding since 2007 were $100,000 of 10% bonds issued at face value and convertible into 30,000 common shares. Destin’s tax rate is 40% and 2013 net income was $550,000.

__ 2. What is Destin’s 2013 basic earnings per share? b. $2.39


__ 3. What is Destin’s 2013 diluted earnings per share? a. $2.07

Answer 1

2. Basic Earning per share = 2.39

3. Diluted earnings per share = 2.07

Step-by-step explanation:

2.

Calculation of Weighted Average No. of Equity Shares Outstanding

Particular Portion Shares Calculations Weighted

of year outstanding Average

during time Impact

interval.

Shares 12 months 200000 12/12*200000 200000

Outstanding

1 Jan-31 Dec

15% Stock 12 months 30000 12/12*30000 30000

Total 230000

Basic Earning per share= Income available to common share

holders/Weighted average no of shares

Net Income 550000

Income available to common share holders 550000

Weighted Average no. of shares 230000

Basic Earning per share = 2.39

3.

Diluted Earning Per Share =Earning for Equity share holders after effects of Dilutive Potential Equity Shares/ Weighted

Average No of O/SEquity after effects of Dilutive Potential Equity Shares

Potential Equity Shares= ESOP-(ESOP*(Exercise Price/ Market Price))

ESOP 40000

Exercise Price 40

Market Price 50

Potential Equity Shares 8000

Time Portion Shares Calculations Weighted

Interval of year outstanding Average

during time Impact

interval

Shares 12 months 200000 12/12*200000 200000

Outstanding

1 Jan-31 Dec

15% Stock 12 months 30000 12/12*30000 30000 Dividend

Potential Equity 8000 8000

Shares (ESOP)

Debentures 30000 30000

Total 268000

Diluted EPS

Earning for Equity Share holders 550000

Incremental EPS 100000*10%*(1-0.4) 6000

Total 556,000

Weighted average no of Equity Shares 268000

DEPS 2.07