Question

Kasravi Co. had net income for 2011 of $300,000. The average number of shares outstanding for the period was 200,000 shares. The average number of shares under outstanding options at an option price of $30 per share is 12,000 shares The average market price of the common stock during the year was $36. What should Kasravi Co. report for diluted earnings per share for the year ended 2011?

Answer 1

$1.49 per share

Step-by-step explanation:

The calculation of diluted earnings per share is given below:-

Diluted shares outstanding= $200,000 + 12,000 × ($36 - $30) ÷ 36

= $200,000 + 12,000 × 6 ÷ 36

= $200,000 + 2,000

= $202,000

Diluted earnings per share = Net income ÷ Diluted shares outstanding

= $300,000 ÷ $202,000

= $1.49 per share

Therefore for computing the diluted earnings per share we simply divide the net income by diluted shares outstanding.