Question

In: Accounting

On December 31, 2020, Jackson Company had 100,000 shares of common stock outstanding and 27,000 shares...

On December 31, 2020, Jackson Company had 100,000 shares of common stock outstanding and 27,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2021, Jackson purchased 14,000 shares of common stock on the open market as treasury stock for $25 per share. Jackson sold 5,000 treasury shares on September 30, 2021, for $27 per share. Net income for 2021 was $170,905. Also outstanding during the year were fully vested incentive stock options giving key executives the option to buy 40,000 common shares at $30. The market price of the common shares averaged $29 during 2021.

Required: Compute Jackson's basic and diluted earnings per share for 2021. (Round your answers to 2 decimal places.)

Solutions

Expert Solution

1)Jackson's basic per share for 2021 is calculated as follows:

Basic Earning Per Share (EPS) = (Net Income - Prefrence Dividend) /Weighted Average Outstanding Common Shares

Prefrence Dividend = (27,000 shares * $50) * 7%

= $94,500

Weighted Average Outstanding Common Shares = 100,000 - (14,000 * 10/12) + (5,000 * 3/12)

= 100,000 - 11,667 + 1,250

= 89,583 Shares

Basic Earning Per Share (EPS) = ($170,905 - $94,500) / 89,583 Shares

= $76,405 / 89,583 Shares

= $ 0.85

Basic Earning Per Share (EPS) = $ 0.85

2)Jackson's diluted earnings per share for 2021 is calculated as follows:

Diluted Earning Per Share = (Net Income - Prefrence Dividend) /Weighted Average Outstanding Common Shares

Prefrence Dividend = (27,000 shares * $50) * 7%

= $94,500

Weighted Average Outstanding Common Shares =

100,000 - (14,000 * 10/12) + (5,000 * 3/12) - (( 40,000/ 29 *30) - 40,000 ))

= 100,000 - 11,667 + 1,250 - 1,379

  = 88,204 Shares

Diluted Earning Per Share = ($170,905 - $94,500) / 88,204 Shares

= $76,405 / 88,204 Shares

= $ 0.87

Diluted Earning Per Share = $ 0.87


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