Question

As part of its executive compensation plan, Vertovec Inc. granted 60,000 of its no-par common shares to executives, subject to forfeiture if employment is terminated within three years. Vertovec’s common shares have a market price of $15 per share on January 1, 2020, the grant date of the restricted stock award, as well as on December 31, 2021. 1,500,000 shares were outstanding at January 1, 2021. Net income for 2021 was $420,000. Required: Compute Vertovec’s basic and diluted earnings per share for the year ended December 31, 2021. (Enter your answers in thousands.)

Answer 1

Answer:

See the explanation below for the basic EPS and diluted EPS

Explanation:

To calculate EPS we use the earnings of the company adjusted for any income for preferential shareholders. In this case there is no preference shareholders. Thus income attributable to ordinary shareholders is $ 420 000 (net income)

Average outstanding shares for BASIC eps calculation is 1500 000 shares.

BASIC EPS = 420/1500

                  = $ 0,28 per ordinary share

When calculating diluted EPS we include instruments that can potentially increase the number of shares and dilute net income. Thus we will include the 60,000 shares to executives that have a three year condition attached to them.

Diluted EPS = 420/(1500+60)

                    = $0,269