On December 31, 2020, Jackson Company had 100,000 shares of common stock outstanding and 40,000 shares...

On December 31, 2020, Jackson Company had 100,000 shares of common stock outstanding and 40,000 shares of 6%, $50 par, cumulative preferred stock outstanding. On February 28, 2021, Jackson purchased 34,000 shares of common stock on the open market as treasury stock for $45 per share. Jackson sold 7,000 treasury shares on September 30, 2021, for $47 per share. Net income for 2021 was $190,905. Also outstanding during the year were fully vested incentive stock options giving key executives the option to buy 60,000 common shares at $50. The market price of the common shares averaged $49 during 2021.

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

Basic:

Diluted:

Solutions

Expert Solution

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

Basic earnings per share = (Net Income - Prefrence Dividend) / Weighted Average Outstanding Common Shares.

Weighted Average Outstanding Common Shares = 100,000 - (34,000 * 10/12) + (7,000 * 3/12)

= 100,000 - 28,333 + 1,750

= 73,417 Shares

Basic earnings per share = ($190,905 - (40,000 * $50 * 6%) / 73,417 Shares

= ($190,905 - $120,000) / 73,417 Shares

= $70,905 / 73,417 Shares

= $0.97

Basic earnings per share = $0.97

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

Basic earnings per share = (Net Income - Prefrence Dividend) / Weighted Average Outstanding Common Shares.

Weighted Average Outstanding Common Shares

= 100,000 - (34,000 * 10/12) + (7,000 * 3/12) - ((60,000 / 49)*50) - 60,000)

= 100,000 - 28,333 + 1,750 - 1,225

= 72,192 Shares

Diluted earnings per share = ($190,905 - (40,000 * $50 * 6%) / 72,192 Shares

= ($190,905 - $120,000) / 72,192 Shares

= $70,905 / 72,192 Shares

= $0.98

Diluted earnings per share = $0.98

ekkarill92 answered 1 year ago

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