Question

Loredo Company's net income for 2017 is $50,000. The only potentially dilutive securities outstanding were 1,000 options, each exercisable for one share at $6. None have been exercised, and 10,000 shares of common were outstanding during 2017. The average market price of Loredo's stock during 2017 was $10. The 1,000 options were issued on October 1, 2017. DEPS for 2017 is:__________.

a. $4.8
b. $4.55
c. $4.72
d. $4.95
e. $4.87

Answer 1

DEPS for 2017 is: e. $4.87.

Step-by-step explanation:

Diluted Earnings per Share = Earnings Attributable to Holders of Common Stock ÷ Average Number of Common Stocks Outstanding

Earnings Attributable to Holders of Common Stock = $50,000

Average Number of Common Stocks Outstanding :

Common Stocks Outstanding 10,000

Add Potential Common Stock ; Options (1,000 × 3/12) 250

Average Number of Common Stocks Outstanding 10,250

Thus,Diluted Earnings per Share = $50,000 ÷ 10,250

= $4.87