Problem: On December 31, 2005, Brisbane Company had 100,000 shares of common stock outstanding and 30,000 shares of 7%, $50 par, cumulative preferred stock outstanding. On February 28, 2006, Brisbane purchased 24,000 shares of common stock on the open market as treasury stock paying $40 per share. Brisbane sold 6,000 treasury shares on September 30, 2006, for $45 per share. Net income for 2006 was $180,905.
Also outstanding during the year were stock options giving key personnel the option to buy 50,000 common shares at the exercise price of $40 each. During 2006, the average market price of the common shares was $50 each.
Required:
Q1. Compute Brisbane's basic earnings per share for 2006.
Q2. Compute Brisbane's diluted earnings per share for 2006.
Q3. If the exercise price of stock options were $50 per share and the average market price of the common share were $40, what diluted EPS will be reported for 2006?