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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

Sagot :

abiolataiwo2015

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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