Question

During 2018, its first year of operations, McCollum Tool Works entered into the following transactions relating to shareholders’ equity. The corporation was authorized to issue 100 million common shares, $1 par per share.

Jan.		2		Issued 45 million common shares for cash.
		3		Entered an agreement with the company president to issue up to 2 million additional shares of common stock in 2019 based on the earnings of McCollum in 2019. If net income exceeds $130 million, the president will receive 1 million shares; 2 million shares if net income exceeds $140 million.
Mar.		31		Issued 4 million shares in exchange for plant facilities.

Net income for 2018 was $135 million.

Required:

Compute basic and diluted earnings per share for the year ended December 31, 2018.

Answer 1

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Basic Earning Per share	Net Income/No of Shares
	$ 135/(45+4)
	$                                                                                 2.76	per share
Diluted Earning Per share	Net Income/(No of Shares+potential shares)
	$ 135/(45+4+2)
	$                                                                                 2.65	per share