Chapter 20, Problem 20.9E

Computing Basic and Diluted EPS, Options, Warrants, Preferred Stock, Disclosures. You are computing annual earnings per share and required disclosures for Tracy Fencing based on company-provided information Net income is $4,500,000. The weighted-average number of shares is 2,700,000. The year-end balance of outstanding shares is also 2,700,000. There are options outstanding all year to acquire 1,200,000 shares of common stock at $27 per share. The average price of the company’s common stock is $36 per share. The firm has 90,000 shares of $50 par value nonconvertible, noncumulative preferred stock outstanding as of the beginning of the year. The dividend rate is $1,80 per share. The board of directors declared the annual dividend. The company is subject to a 40% tax rate.

Required

1. a. Based on this information, compute basic and diluted earnings per share for the current year.
2. b. Prepare the earnings per share disclosure on the income statement beginning with net income.