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Sunland Corporation earned $267,000 during a period when it had an average of 100,000 shares of common stock outstanding
Sunland Corporation earned $267,000 during a period when it had an average of 100,000 shares of common stock outstanding. The common stock sold at an average market price of $18 per share during the period. Also outstanding were 14,100 warrants that could be exercised to purchase one share of common stock for $12 for each warrant exercised.
(a) Are the warrants dilutive?
No
Yes
(b) Compute basic earnings per share. (Round answer to 2 decimal places, e.g. $2.55.)
Basic earnings per share$
(c) Compute diluted earnings per share. (Round answer to 2 decimal places, e.g. $2.55.)
Diluted earnings per share$
Expert Solution
a) Yes, Share warrants are dilutive share because the market price of stock is more than the exercise price.
b) Computation of Basic Earning per Share:
Basic Earning per Share = Net Income/Share Outstanding
= $267,000/100,000
Basic Earning per Share = $2.67 per share
c) Computation of Diluted Earning per Share:
Diluted Earning per Share = Adjusted Net Income/Adjusted Number of Shares Outstanding
Here,
Adjusted Number of Shares Outstanding = 100,000+(($18-$12)/$18*14,100) = 100,000+4,700 = 104,700
Diluted Earning per Share = $267,000/104,700 = $2.55 per share
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