Gabor Company had granted 20,000 options to buy one share of common stock at $10 per share to employees several years ago.The company had net income of $200,000 this year and had 300,000 shares of common stock outstanding the entire year.The average market price per share was $20 and the end of year price was $25.Given only the above information,what are basic and diluted earnings per share respectively for the year?

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Basic EPS is calculated as net income divided by the weighted average number of common shares outstanding. Diluted EPS takes into account the effect of dilutive securities like stock options, which can increase the number of shares outstanding if the options are exercised. Here, basic EPS is $200,000 / 300,000 = $0.67. For diluted EPS, the options are in-the-money (exercise price of $10 is less than market price of $20 or $25), so we use the treasury stock method to calculate the potential dilution. The calculation involves determining how many shares could be bought back with the proceeds from the options exercise and subtracting this from the total number of shares that would be issued if all options were exercised. The calculation for the additional shares from the options is (20,000 options * ($25 - $10)) / $25 = 12,000 shares. So, the diluted shares outstanding = 300,000 + 20,000 - 12,000 = 308,000. Diluted EPS = $200,000 / 308,000 = $0.65.

Gabor Company Had Granted 20,000 Options to Buy One Share