Question

Bedard Corporation reported net income of \(300,000 in 2017 and had 200,000 shares of common stock outstanding throughout the year. Also outstanding all year were 45,000 options to purchase common stock at \)10 per share. The average market price of the stock during the year was $15. Compute diluted earnings per share.

Short answer

The diluted earnings per share of Bedard Corporation is $1.40.

Step-by-step solution

The following information is given

Net Income $300,000

Common stock Outstanding 200,000 shares

Common stock $10 per share

Outstanding all year 45,000

The average market price of the stock is $15.

Computation of diluted earnings per share

Proceeds from assumed exercise of 45,000 options (45,000 X $10)	$450,000
Shares issued upon exercise	45,000
Treasury shares purchasable ($450,000 ÷ $15)	(30,000)
Incremental shares	15,000

$\begin{array}{c}\mathbf{Diluted}\mathbf{}\mathbf{earnings}\mathbf{}\mathbf{per}\mathbf{}\mathbf{share}\mathbf{=}\frac{\mathrm{Net}\mathrm{income}}{\mathrm{Common}\mathrm{stock}\mathrm{outstanding}+\mathrm{Incremental}\mathrm{shares}}\\ \mathbf{=}\frac{300,000}{200,000+15,000}\\ \mathbf{=}\mathbf{\$}\mathbf{1}\mathbf{.}\mathbf{40}\end{array}$