Witter House is a calendar-year firm with 300 million common shares outstanding throughout 2016 and 2017. As part of its executive compensation plan, at January 1, 2015, the company had issued 30 million executive stock options permitting executives to buy 30 million shares of stock for $10 within the next eight years, but not prior to January 1, 2018. The fair value of the options was estimated on the grant date to be $3 per option. In 2016, Witter House began granting employees stock awards rather than stock options as part of its equity compensation plans and granted 15 million restricted common shares to senior executives at January 1, 2016. The shares vest four years later. The fair value of the stock was $12 per share on the grant date. The average price of the common shares was $12 and $15 during 2016 and 2017, respectively. The stock options qualify for tax purposes as an incentive plan. The restricted stock does not. The company’s net income was $150 million and $160 million in 2016 and 2017, respectively. Its income tax rate is 40%. Required: 1. Determine basic and diluted earnings per share for Witter House in 2016. 2. Determine basic and diluted earnings per share for Witter House in 2017.
Witter House is a calendar-year firm with 300 million common shares outstanding throughout 2016 and 2017.
As part of its executive compensation plan, at January 1, 2015, the company had issued 30 million executive
stock options permitting executives to buy 30 million shares of stock for $10 within the next eight years, but not
prior to January 1, 2018. The fair value of the options was estimated on the grant date to be $3 per option.
In 2016, Witter House began granting employees stock awards rather than stock options as part of its equity
compensation plans and granted 15 million restricted common shares to senior executives at January 1, 2016.
The shares vest four years later. The fair value of the stock was $12 per share on the grant date. The average
price of the common shares was $12 and $15 during 2016 and 2017, respectively.
The stock options qualify for tax purposes as an incentive plan. The restricted stock does not. The company’s
net income was $150 million and $160 million in 2016 and 2017, respectively. Its income tax rate is 40%.
Required:
1. Determine basic and diluted earnings per share for Witter House in 2016.
2. Determine basic and diluted earnings per share for Witter House in 2017.
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