Question

On December 31, 2017, Jackson Company had 100,000 shares of common stock outstanding and 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2018, Jackson purchased 24,000 shares of common stock on the open market as treasury stock paying $45 per share. Jackson sold 6,000 of the treasury shares on September 30, 2018, for $47 per share. Net income for 2018 was $180,905. Also outstanding at December 31, 2017, were fully vested incentive stock options giving key personnel the option to buy 50,000 common shares at $40. These stock options were exercised on November 1, 2018. The market price of the common shares averaged $50 during 2018.

1. Compute basic EPS rounded to the nearest cent

2. Compute diluted EPS rounded to the nearest cent

Provide explanation for each number in both the denominator and numerator

Answer 1

Answer
Explanation :
Common Stock
Net income for 2018	$       1,80,905
Less:Preferred Dividend ($50*7%*30000)	$     -1,05,000
Net income available for Common Stock	$          75,905
-
No. of Weighted average common stock outstanding
As On December 31, 2017	$       1,00,000
Less:Purchase of Treasury stock on 28/02/2018 (24000*10/112)	$        -20,000
Resale of Treasury stock 30/09/2018 (6000*3/12)	$            1,500
No. of shares outstanding	$          81,500
2018
1) Basic Earning Per Share   (75905/81500)	$              0.93
2) Diluted Earning Per Share (75905/(81500+10000))	$              0.83
Working Note:
** = 50000-(50000*40/50) = 10,000
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