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Carla Vista Corp.’s net income for 2020 is $140,600. The only potentially dilutive securities outstanding were...

Carla Vista Corp.’s net income for 2020 is $140,600. The only potentially dilutive securities outstanding were 1,000 call options issued during 2019, with each option being exercisable for one share at $16. None have been exercised, and 28,700 common shares were outstanding during 2020. The average market price of the company’s shares during 2020 was $20.

QUESTIONS:

A) Calculate diluted earnings per share for the year ended December 31, 2020.

B) Assuming that the 1,000 call options were instead issued on November 1, 2020 (rather than in 2019), calculate diluted earnings per share for the year ended December 31, 2020. The average market price during the last two months of 2020 was $20.

Solutions

Expert Solution

Net income for 2020 $140,600
Total no of share outstanding during the year 2020 $28,700
Weightage averable of ordinary shares              = $28700*12/12
                                                                       = $28,700
Potentially security $1,000
A) Diluted earnings per share for the year ended December 31, 2020

Dilluted earing per share=

 Net income
Weighted average number of common shares outstanding
= $140,600 = $4.8651
28,700+200
Working note
Number of shares increased                             = Market price-exerciable price * no of options = 20-16 *1000
Market price 20
= 200 shares
B) Diluted earnings per share for the year ended December 31, 2020

Dilluted earing per share=

 Net income
Weighted average number of common shares outstanding
= $140,600 = $4.89327
28,700+33.33
Working note
Number of shares increased                             = Market price-exerciable price * no of options = 20-16 *1000
Market price 20
= 200 shares
Weightage average of dilluted shares                =
for two months (Nov and Dec)                         		 200*2/12 =33.33 shares

ekkarill92 answered 1 year ago
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