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Brisbane Company - Earnings per Share

On December 31, 2005, Brisbane Company had 100,000 shares of common stock
outstanding and 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2006, Brisbane purchased 24,000 shares of common stock on the open market as treasury stock paying $40 per share. Brisbane sold 6,000 treasury shares on September 30, 2006, for $45 per share. Net income for 2006 was $180,905.

Also outstanding during the year were stock options giving key personnel the
option to buy 50,000 common shares at the exercise price of $40 each. During 2006, the average market price of the common shares was $50 each.

Required:
a. Compute Brisbane's basic earnings per share for 2006.
b. Compute Brisbane's diluted earnings per share for 2006.
c. If the exercise price of stock options were $50 per share and the average market price of the common share were $40, what diluted EPS will be reported for 2006?

Solution Preview

a. Compute Brisbane's basic earnings per share for 2006.
First, you need to compute the total common shares outstanding for Brisbane. We will consider the number of common share from the following information.
On December 31, 2005, common stock outstanding 100,000 shares
Less: February 28, 2006, purchase common stock back as treasury stock 24,000 shares
Add: September 30, 2006, sales of treasury stock ...

Solution Summary

This solution is comprised of a detailed explanation to calculate the earnings per share of the assignment in text file.

$2.19