Calculating Earnings per Share Little, Inc., reported earnings of $162,000 for 2013, and at the end of the year, had the following securities outstanding: 60,000 shares of common stock. (The year-end share price was $25 per share). Employee stock options for the purchase of 8,000 common shares at an exercise price of $22 per share. (The options are fully vested). (a) Calculate the basic earnings per share for Little, Inc. for 2013. Round to two decimal places.
(b) Calculate the diluted earnings per share for Little, Inc. for 2013. Round to two decimal places.

(a) Basic earnings per share = $2.70 per share

(b) Diluted earnings per share = $2.38 per share

Explanation:

(a) Calculate the basic earnings per share for Little, Inc. for 2013. Round to two decimal places.

Basic earnings per share = Earnings / Number of shares of common stock (1)

Where;

Earnings = $162,000

Number of shares of common stock = 60,000

Substituting the values into equation (1), we have:

Basic earnings per share = $162,000 / 60,000 = $2.70 per share

(b) Calculate the diluted earnings per share for Little, Inc. for 2013. Round to two decimal places.

Diluted earnings per share = Earnings / (Number of shares of common stock +  Number of common shares for employee stock options) (2)

Where;

Earnings = $162,000

Number of shares of common stock = 60,000

Number of common shares for employee stock options = 8,000

Substituting the values into equation (2), we have:

Diluted earnings per share = $162,000 / (60,000 + 8,000) = $162,000 / 68,000 = $2.38 per share

See Explanation

Explanation:

a. Calculate the basic earnings per share for Little, Inc. for 201

(Net income - Preferred stock dividend) / Weighted SVF shaers of the common stock outstanding

= ($162,000 - 0) / 60,000

= $162000 / 60000

= $2.70

b. Calculate the diluted earnings per share for Little, Inc. for 2013

= ($162,000 - 0) / (60,000+8,000)

= $162000 / 68000

= $2.38

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