Kasravi Co. had net income for 2021 of $600000. The average number of shares outstanding for the period was 200000 shares. The average number of shares under outstanding options, at an option price of $30 per share is 12000 shares. The average market price of the common stock during the year was $36. What should Kasravi Co. report for diluted earnings per share for the year ended 2021

Answer: $2.97

Explanation:

Net income = $600,000

Number of shares outstanding or eighred average shares = 200,000

Average market price of common stock = $36

Proceeds if 12000 shares is issued at option price of $30

Proceeds = 12000 * $30 = $36,000

Shares assumed purchased = (Proceeds : Market share price)

Shares assumed purchased ($36,000 : $36) = 10000 shares.

Incremental share issued (12000 - 10000) = 2000 shares

Diluted EPS = (Net income : Average Weighted shares + incremental share issued))

Diluted EPS = ($600,000 : (200,000+2000))

Diluted EPS = $600,000 : 202,000

Diluted EPS = $2.97