Business

Question

Patel Co. had net income for 2020 of $500,000. 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 $40. What should Patel Co. report for diluted earnings per share for the year ended 2020

1 Answer

  • Answer:

    $2.46

    Explanation:

    Calculation to determine What should Patel Co. report for diluted earnings per share for the year ended 2020

    First step is to calculate the proceeds

    Proceeds = 12000 × $30

    Proceeds= $36,000

    Second step is to calculate the Shares assumed purchased

    Shares assumed purchased ($36,000 ÷ $40)

    Shares assumed purchased = 9000shares.

    Third step is to calculate the Incremental share issued

    Incremental share issued (12000 - 9000)

    Incremental share issued = 3000 shares

    Now let calculate the Diluted EPS using this formula

    Diluted EPS = (Net income ÷ Average Weighted shares + incremental share issued))

    Let plug in the formula for

    Diluted EPS = ($500,000 ÷ (200,000+3000))

    Diluted EPS = $500,000 ÷ 203,000

    Diluted EPS = $2.46

    Therefore What should Patel Co. report for diluted earnings per share for the year ended 2020 is $2.46

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