FED had 100 common shares issued and outstanding at December 31, 2013.On July 1, 2014, FED issued a 10 percent stock dividend.Unexercised stock options to purchase 20 common shares (adjusted for 2014 stock dividend)at $20 per share were outstanding at the beginning and end of 2014.The average market price of FED'S common shares (which was not affected by the stock dividend)was $25 per share during 2014.The ending market price was $40.FED earned interest at 8% and had a 50% tax rate.Net income for the year ended December 31, 2014, was $2,200.What was FED'S 2014 diluted earnings per share, rounded to the nearest cent?

Question

Quizplus · Accepted Answer

To calculate diluted earnings per share (EPS), we first adjust the number of shares for the stock dividend and options. The initial 100 shares increase by 10% due to the stock dividend, resulting in 110 shares. The options to purchase 20 shares at $20, when the average market price is $25, are in-the-money and would be exercised, adding 20 shares. This results in a total of 130 shares. The net income is $2,200. Diluted EPS = Net Income / Adjusted Shares = $2,200 / 130 = $16.9230769, rounded to $17.05.

FED Had 100 Common Shares Issued and Outstanding at December