On December 31, 2020, Brisbane Company had 100,000 shares of common stock outstanding and 24,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2021, Brisbane purchased 16,000 shares of common stock on the open market as treasury stock paying $32 per share. Brisbane sold 5,200 treasury shares on September 30, 2021, for $37 per share. Net income for 2021 was $172,905. Also outstanding during the year were fully vested incentive stock options giving key officers the option to buy 42,000 common shares at $32. The market price of the common shares averaged $42 during 2021. Required: Compute Brisbane's basic and diluted earnings per share for 2021.

Basic Earnings per share =  $0.81

Diluted Earnings per share =  $0.59

Explanation:

Basic Earnings per share = Earnings Attributable to Holders of Common Stock / Weighted Average Number of Common Stocks

Earnings Attributable to Holders of Common Stock Calculation :

Net income                                                                          $172,905

Less Preference Dividend (24,000× $50×7%)                  ($84,000)

Earnings Attributable to Holders of Common Stock         $88,905

Weighted Average Number of Common Stocks Calculation :

Common Stocks 1 January 2021                                          100,000

Add Common Stocks February 28, 2021                               13,333

Less Common Stocks September 30, 2021                          (3,640)

Weighted Average Number of Common Stocks                109,693

Basic Earnings per share = $88,905 / 109,693

                                           = $0.81

Diluted Earnings per share = Adjusted Earnings Attributable to Holders of Common Stock / Adjusted Weighted Average Number of Common Stocks

Adjusted Earnings Attributable to Holders of Common Stock Calculation :

Net income                                                                          $172,905

Less Preference Dividend (24,000× $50×7%)                  ($84,000)

Earnings Attributable to Holders of Common Stock         $88,905

Adjusted Weighted Average Number of Common Stocks Calculation :

Weighted Average Number of Common Stocks                109,693

Add  incentive stock options                                                 42,000

Adjusted Weighted Average Number of Common Stocks 151,693

Diluted Earnings per share = $88,905 / 151,693

                                               = $0.59

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