Answer:
0.22
Explanation:
Calculation for the weight on common equity
Using this formula
Weight of Common equity = Common Equity/(Debt + Preferred Equity+Common Equity)
Where,
Common Equity=1.2
Debt =1.1
Preferred Equity=3
Let plug in the formula
Weight of common equity = 1.2/(1.1+ 3+ 1.2)
Weight of common equity=1.2/5.3
Weight of Common Equity=0.22
Therefore the weight on common equity will be 0.22
Childress compnay produces three products, K1, S5, and G9. Each product uses the same type of material. K1 uses 4.5 pounds of the material, S5 uses 3 pounds , and G9 uses 5.5 pounds. Demand for all products is strong but only 59900 pounds of material are available. Information about the selling price per unit and variable cost per unit of each product follows.
K1 S5 G9
Selling price $158.38 $114.80 $204.52
Variable costs 86.00 91.00 139.00
Required:
Calculate the contribution margin per pound for each of the three products.
Answer:
Product K1 S5 G9
$ $ $
Contribution per pound 16.08 7.93 11.91
Explanation:
Contribution per pound is equate to contribution per unit divided quantity of material required per unit of product.
Contribution per pound = Contribution per unit/quantity of material
Contribution per unit =selling price - variable cost per unit
Product K1 S5 G9
$ $ $
Selling price 158.38 114.80 204.52
Variable cost (86.00) (91.00) (139.00)
Contribution per unit 72.38 23.8 65.52
Material per unit (pounds) 4.5 3 5.5
Contribution per pound 16.08 7.93 11.91
Precise Machinery is analyzing a proposed project. The company expects to sell 3,500 units, give or take 5 percent. The expected variable cost per unit is $260 and the expected fixed costs are $589,000. Cost estimates are considered accurate within a plus or minus 4 percent range. The depreciation expense is $129,000. The sales price is estimated at $750 per unit, plus or minus 3 percent. What is the sales revenue under the worst case scenario
Answer:
Sales revenue= $2,418,937.5
Explanation:
Giving the following information:
The company expects to sell 3,500 units, give or take 5 percent.
The sales price is estimated at $750 per unit, plus or minus 3 percent.
The sales revenue worst-case scenario is the one with the lowest units sold and the lowest selling price per unit.
Units sold= 3,500*0.95= 3,325
Selling price= 750*0.97= $727.5
Sales revenue= 3,325*727.5= $2,418,937.5
you are planning t save for retirement over the next 30 years. To do this, you will invest $850 per month in a stock account and $350 per month in a bond account. The return of the stock account is expected to be 10 percent, and the bond account will pay 6 percent. When you retire, you will combine your money into an account assuming a 25 year withdrawal period? stock account value retirement
Answer:
$13,287.70
Explanation:
The computation of the amount at withdrawal is to be determined by using the excel spreadsheet in which we applied the formulas like future value, PMT
Given that
Time period = 30 years
Withdrawal period = 25 years
Invested amount in stock account = $850
Invested amount in bond account = $350
Return on stock = 10%
Return on bond = 6%
Based on the above information
The withdrawal amount os $13,287.70
During 2008, Gum Co. introduced a new product carrying a two-year warranty against defects. The estimated warranty costs related to dollar sales are 2 percent within twelve months following the sale and 4 percent in the second twelve months following the sale. Sales and actual warranty expenditures for the years ended December 31, 2008 and 2009, are as follows:
Sales Actual Warranty Expenditures
2008 $150,000 $2,250
2009 250,000 7,500
$400,000 $9,750
What amount should Gum report as estimated warranty liability on its December 31, 2009 balance sheet?
a. $7,500
b. $4,250
c. $11,250
d. $14,250
e. $16,500
Answer:
d. $14,250
Explanation:
Calculation of the amount that Gum should report as estimated warranty liability on its December 31, 2009 balance sheet
First step
2% within twelve months following the sale + 4 % in the second twelve months following the sale.
Will give us 6%
Second step is to calculate the estimated warranty liability that should be reported
Sales Total of $400,000×6%
=$24,000
Hence,
Estimated warranty liability =$24,000 -Total of actual warranty expenditures of $9,750
Estimated warranty liability=$14,250
Therefore the amount that Gum should report as estimated warranty liability on its December 31, 2009 balance sheet will be $14,250
Determine the incremental rate of return (ROR) value of the two alternatives below. Hint: Convert RoR value to a percentage. If the answer is 10%, enter 10. Do not enter 0.01. A B First Cost, $ 135,000 185,000 Operating Cost, $/year 9,000 5,200 Salvage value, $ 9,000 10,000 Life, n [infinity] [infinity]
Answer:m Incremental rate of return (ROR) = 0.076 ≈7.6%
Explanation:
Given that;
A B
First Cost $ 135,000 185,000
Operating Cost $/year 9,000 5,200
Salvage value $ 9,000 10,000
Life, n [infinity ∞] [infinity ∞]
As alternatives have infinite life, salvage value will have no effect on calculations
Therefore;
Incremental initial cost (B-A) = 185000 - 135000 = 50000
Incremental annual cost (B-A) = 5200 - 9000 = -3800 (Annual savings)
Present worth of infinite annuity = A / i
Incremental rate of return ROR = 3800 / 50000 = 0.076 ≈7.6%
A copy machine acquired on July 1 with a cost of $1,450 has an estimated useful life of four years. Assuming that it will have a residual value of $250, determine the depreciation for the first year by the double-declining-balance method.
Answer:
Annual depreciation= $300
Explanation:
Giving the following information:
Purchasing price= $1,450
Salvage value= $250
Useful life= 4 years
First, we need to determine the annual depreciation for the whole year using the following formula:
Annual depreciation= 2*[(book value)/estimated life (years)]
Annual depreciation= 2*[(1,450 - 250) / 4]
Annual depreciation= $600
Now, for 6 months:
Annual depreciation= (600/12)*6= $300
A consumer values a house at $525,000 and a producer values the same house at $485,000. If the transaction is completed at $510,000, what amount of tax will result in unconsummated transaction? a. A tax of $14,000 b. A tax of $15,000 c. A tax of $9,000 d. A tax of $18,000
Answer:
d. A tax of $18,000
Explanation:
If the price is higher than $525,000 which is his reservation price, the buyer will not buy the good
(1+t) > $525,000 / $510,000
1+t > 1.03
t > 0.03
t > 3%
3% of $510,000 = $15,300. So if the tax is greater than $15,300, the buyer will not buy the good . Hence, the answer is option (D) A tax of $18,000 as this tax is higher than $15,300 while other option are less than $15,300
adjustments that increase or decrease earnings should be investigated with more skepticism.
Answer:
True of financial account auditors.
Explanation:
A financial account auditor often act as skeptics (having suspicion and lack of trust) when reviewing financial transactions.
Thus financial accounts adjustments that increase or decrease earnings are usually investigated with more skepticism by auditors. Such increased skepticism is important because it enables the auditor undo errors and better position the business for success.
What is the stock price per share for a stock that has a required return of 16%, an expected dividend $2.7 per share, and a constant growth rate of 10%
Answer:
Price of stock = $49.5
Explanation:
The Dividend Valuation Model(DVM) is a technique used to value the worth of an asset. According to this model, the value of an asset is the sum of the present values of the future cash flows would that arise from the asset discounted at the required rate of return.
If dividend is expected to grow at a given rate , the value of a share is calculated using the formula below:
Price of stock=Do (1+g)/(k-g)
Do - dividend in the following year, K- requited rate of return , g- growth rate
DATA:
D0- 2.7
g- 10%
K- 16%
Price of stock = ( 2.7×1.1)/(0.16-0.1) = 49.5
Price of stock = $49.5
Jackie notices everyone wearing Converse sneakers on the first day of school. Ever the fashionista, this will likely affect: Multiple Choice Jackie's income, as she now needs to buy Converse and will have less to spend on other goods. Jackie's preferences for shoes, since she feels as though she needs them now. Jackie's expectations of future prices, since the price of Converse will likely go up because they're getting so popular. the prices of related goods, since other shoes will be less popular and cost less now.
Answer:
Jackie's income, as she now needs to buy Converse and will have less to spend on other goods.
Explanation:
Jackie is a fashionista and so she would respond to trends. Since everyone around her is wearing converse, she would want to wear converses too. so her income would be affected as it would be reduced as she would buy the converse.
A sudden fall in the market demand in a competitive industry leads to a. A short run market equilibrium price lower than the original equilibrium b. A market equilibrium price higher than the short run price c. Some firms exiting the market d. All of the above
Answer:
The answer is C. Some firms exiting the market
Explanation:
When there is a sudden fall in the market demand in a competitive industry(e.g perfect competition) some firms would making economic losses and it is best if they shut down operation and production. Once these happen, they exit the market.
Option A is incorrect . Same as option B.
Option D is also incorrect
Judith George makes an offer to sell a plot of land using a normal letter and states no authorized means by which the offeree,Helga Holmes must respond if she accepts.If Helga accepts the offer using a normal letter,which of the following is true?
A) The acceptance is effective upon dispatch.
B) The acceptance is effective when it is received.
C) The offer is invalid because it fails to stipulate the means of acceptance.
D) The acceptance would be effective upon dispatch even if the means of acceptance is unreasonable.
Answer:
A) The acceptance is effective upon dispatch
Explanation:
In the given scenario an offer was made by Judith using normal letter, she did not state the authorised means by which the acceptance should be made.
If Helga accepts the offer and chooses and means to convey the acceptance, it will be acceptable as there is no specific way stated by Judith.
So when Helga responds by using a normal letter, the acceptance is effective when she dispatches the letter.
If however Judith stated an authorised means of acceptance, Helga would have to comply to make sure her acceptance is valid
Bob Katz is purchasing a new Honda Pilot for $34,000. He is financing $30,000 with a six year, 4% loan with annual payments. Construct an amortization schedule, in the 2nd year row, corresponding to his second annual payment, what is the dollar amount of the principal reduction
Answer:
$ 4,704
Explanation:
The starting point would be to ascertain the yearly payment using the excel pmt function as below:
=pmt(rate,nper,-pv,fv)
rate is the interest rate on the loa which is 4%
nper is the number of annual payments i.e 6
pv is the amount of finance granted which is $30000
fv is the balance after payments have been i.e $0
=pmt(4%,6,-30000,0)=$5,722.86
Find attached amortization schedule
The classification of a result refers to the category of the Business/POI. When would you consider the classification incorrect? Answer When the classification is misspelled When the classification is misleading When the classification is in an unexpected language or script All of the above
Answer: All of the above
Explanation:
The classification of a result refers to the category of the Business/POI and this classification would be considered to be incorrect when the classification is misspelled, when the classification is misleading or in a situation whereby the classification is in an unexpected language or script.
Therefore, the correct option is All of the above.
If Tamarisk, Inc. realizes a loss of $9400 on a cash sale of office equipment having a book value of $93600, the total amount reported in the cash flows from investing activities section of the statement of cash flows is
Answer:
The total amount reported in the cash flows from investing activities section of the statement of cash flows is $84,200.
Explanation:
Cash flow from Investing Activities involve the Purchase and or sale of Capital Investments in the business.
The only cash item from Investing Activity for Tamarisk, Inc in the sale of office equipment is the Proceeds or Selling Price that it received in the sale transaction.
Calculation of the Sale Proceeds :
Hint : Open an Office Equipment Disposal T - Account
Office Equipment Disposal T - Account
Debit :
Book Value $93,600
Totals $93,600
Credit :
Profit and Loss $9,400
Proceeds (Balancing figure) $84,200
Totals $93,600
Conclusion :
The total amount reported in the cash flows from investing activities section of the statement of cash flows is $84,200.
Jobs in which employees must frequently display emotions that oppose their genuine emotion require more emotional labor.
a) true
b) false
Answer:
a) true.
Explanation:
This statement is true, because emotions are feelings inherent to the human being, and therefore they also directly influence work, even though there is a posture geared more to the execution of reason due to professional posture than to emotions.
The ideal is therefore that there is a management aimed at creating an organizational culture aimed at the development of positive emotions, such as ethics, mutual respect, adequate communication, preservation of individual values, etc.
Emotions are capable of directly influencing the actions of employees, when they are positive they motivate and encourage the performance of productive work, when they are negative it can generate conflicts, demotivation, employee turnover, etc.
Kant Corporation retires its $100,000 face value bonds at 102 on January 1, following the payment of interest. The carrying value of the bonds at the redemption date is $96,250. The entry to record the redemption will include a
Answer:
Refer to the explanation below
Explanation:
Please see the journal entry below;
Dr Bonds payable $100,000
Dr Loss on retirement of bonds
$5,750
( $102,000 + $3,750 - $100,000)
To Cash $102,00( $100,000 × 1.02)
To Discount on bonds payable
$3,750( $100,000 - $96,250)
(Being redemption that is recorded)
Because bonds payable and loss on retirement of bonds decreases the liability and increased the loss, hence were debited. Cash and discount on bonds payable were credited because it decreases the assets and increased liabilities respectively.
Your grandparents would like to establish a trust fund that will pay you and your heirs $135,000 per year forever with the first payment one year from today. If the trust fund earns an annual return of 2.6 percent, how much must your grandparents deposit today?
Answer:
PV= $5,192,307.70
Explanation:
Giving the following information:
Cash flow= $135,000 per year forever
Interest rate= 2.6% = 0.026 compounded annually
To calculate the present value of the perpetual annuity, we need to use the following formula:
PV= Cf/i
PV= 135,000/0.026
PV= $5,192,307.70
Suppose that you take $50 in currency out of your pocket and deposit it in your checking account. If the required reserve ratio is 8%, what is the largest amount (in dollars) by which the money supply can increase as a result of your action?
Answer:
The largest amount (in dollars) by which the money supply can increase as a result of the action is $625.
Explanation:
This is an example of money multiplier.
Money multiplier refers to the maximum amount of money that commercial bank can create or generate with each dollar of reserves.
Reserves or required reserves refer to the amount of money or portion of deposit that the central bank such as the Federal Reserve requires banks to hold and not lend.
In order to determine the largest amount (in dollars) by which the money supply can increase as a result of $50 deposit, money multiplier is used to multiply the $50 deposit.
The formula for the money multiplier is given as follows:
Money multiplier = 1/r
Where;
r = required reserve ratio = 8%, or 0.08.
Therefore, we have:
Money multiplier = 1 / 0.08 = 12.50
Largest amount of increase = Amount of deposit * Money multiplier = $50 * 12.50 = $625.
Therefore, the largest amount (in dollars) by which the money supply can increase as a result of the action is $625.
How can you filter the for review tab to see all the transactions quickbooks online thinks it has found a good match for?
Answer:
Click on the Recognized tab
Explanation:
If you want to filter the for review tab to find the good match all you have to do is:
Step 1: Go at "For Review" Tab
Step 2: Above the transactions their will be Recognized Tab. Click on it which would filter all the transactions that provides a good match.
The following selected amounts are reported on the year-end unadjusted trial balance report for a company that uses the percent of sales method to determine its bad debts expense. Accounts receivable$441,000Debit Allowance for Doubtful Accounts 1,310Debit Net Sales 2,160,000Credit All sales are made on credit. Based on past experience, the company estimates 1.0% of credit sales to be uncollectible. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense
Answer:
The Adjusting entry at the end of the current year to record its estimated bad debts expense is:
Journal Entry:
Debit Bad Debts Expense $22,910
Credit Allowance for Doubtful Accounts $22,910
To record the bad debts expense and bring the Allowance for Doubtful Accounts to a credit balance of $21,600.
Explanation:
a) Allowance for Doubtful Accounts
Beginning balance $1,310 Dr.
Ending balance 21,600
Uncollectible Expense = $22,900
b) Uncollectible for the period = 1% of $2,160,000 = $21,600
This should be the ending balance of the Allowance for Doubtful Accounts.
c) The above journal entry will ensure that the balance in the Allowance for Doubtful Accounts is now $21,600 credit.
Patton has acquired several other companies. Assume that Patton purchased Kate for $ 6 comma 000 comma 000 cash. The book value of Kate's assets is $ 15 comma 000 comma 000 (market value, $ 17 comma 000 comma 000 ), and it has liabilities of $ 13 comma 000 comma 000 (market value, $ 13 comma 000 comma 000 ). Requirements 1. Compute the cost of goodwill purchased by Patton . 2. Record the purchase of Kate by Patton .
Answer:
1. $2,000,000
2. Accounting Entry
Assets $17,000,000 (debit)
Goodwill $2,000,000 (debit)
Liabilities $13,000,000 (credit)
Investment in Kate $6,000,000 (credit)
Explanation:
The Acquisition of Kate must be done at the fair value of Assets and Liabilities at the acquisition date instead of book values.
Goodwill is the excess of the Purchases Price over the Net Identifiable assets acquired.
Calculation of Goodwill :
Purchase Price $6,000,000
Less Net Identifiable Assets
Assets at Fair Value $17,000,000
Less Liabilities at Fair Value ($13,000,000) ($4,000,000)
Goodwill $2,000,000
Accounting Entry
Assets $17,000,000 (debit)
Goodwill $2,000,000 (debit)
Liabilities $13,000,000 (credit)
Investment in Kate $6,000,000 (credit)
Ansara Company had the following abbreviated income statement for the year ended December 31, 20Y2:
(in millions)
Sales $25,790
Cost of goods sold $21,920
Selling, administrative, and other expenses 2,320
Total expenses $24,240
Income from operations $1,550
Assume that there were $5,620 million fixed manufacturing costs and $1,280 million fixed selling, administrative, and other costs for the year. The finished goods inventories at the beginning and end of the year from the balance sheet were as follows:
January 1 $3,060 million
December 31 $3,570 million
Assume that 20% of the beginning and ending inventory consists of fixed costs. Assume work in process and materials inventory were unchanged during the period.
Prepare an income statement according to the variable costing concept for Ansara Company for 20Y2.
Ansara Company
Variable Costing Income Statement
For the Year Ended December 31, 20Y2 (in millions)
Sales $ 21,920
Variable cost of goods sold:
Beginning inventory $ 1,841
Variable cost of goods manufactured 12,710
Ending inventory 2,149
Total variable cost of goods sold 18,670
Manufacturing margin $ 3,250
Variable selling and administrative expenses 870
Contribution margin $ 2,380
Fixed costs:
Fixed manufacturing costs $ 4,820
Fixed selling and administrative expenses 1,100
Total fixed costs 5,920
Income from operations $
Answer:
Ansara Company
Variable Costing Income Statement
For the Year Ended December 31, 20Y2 (in millions)
Sales $25,790
Variable cost of goods sold:
Beginning inventory ($3,060 × 80%) $2,448
Variable cost of goods manufactured ($21,920 × 80%) $17,536
Ending inventory ($3,570 × 80%) ($2,856)
Total variable cost of goods sold ($17,128 )
Contribution margin $ 8,662
Less (Period) Expenses :
Fixed manufacturing costs ($5,620)
Selling and administrative expenses :
Fixed selling and administrative expenses ($1,280)
Variable selling and administrative expenses ($1,040)
Income from operations $772
Explanation:
Variable Costing :
Product Cost = Only Variable Manufacturing Cost
= This is 80% of Cost of Goods Sold from our senario.
Period Cost = Fixed Manufacturing Costs + All Non - Manufacturing Cost (Variable and Fixed)
Note : Variable selling and administrative expenses is what remains after fixed selling, administrative, and other costs are removed from the total of selling, administrative, and other costs.
Neither the payback period nor the accounting rate of return methods of evaluating investments considers the time value of money.
a) True
b) False
Answer:
The answer is true.
Explanation:
Both of payback period and Accounting Rate of Return do not consider the time value of money. And this is one of the big disadvantages in using these methods as a means of valuating capital project.
While payback period is the length of time it takes a firm to recover the cost of an investment, accounting rate of return is annual return(profit) on investment.
Payback period is only interested in when it will get its Investment back. It ignores the value or time after this investment has been realized.
definition of home trade
Answer:
Domestic trade, also known as internal trade or home trade, is the exchange of domestic goods within the boundaries of a country. This may be sub-divided into two categories, wholesale and retail
Bramble Woodcrafters sells $202,300 of receivables to Commercial Factors, Inc. on a with recourse basis. Commercial assesses a finance charge of 5% and retains an amount equal to 4% of accounts receivable. Bramble estimates the fair value of the recourse liability to be $8,710. Prepare the journal entry for Bramble to record the sale.
Answer:
Dr Cash $184,093
Dr Due from Factor $8,092
Dr Loss on Sale of Receivables $18,825
Cr Accounts Receivable $202,300
Cr Recourse Liability $8,710
Explanation:
Preparation of the journal entry for for Bramble to record the sale.
Dr Cash $184,093
$202,300 – [$202,300 * (.05 + .04)]
$202,300-(202,300*0.09)
$202,300-$18,207
=$184,093
Dr Due from Factor $8,092
($202,300 *.04)
Dr Loss on Sale of Receivables $18,825
(184,093+8,092-$211,010)
Cr Accounts Receivable $202,300
Cr Recourse Liability $8,710
(Accounts Receivable $202,300 + Recourse Liability $8,710 =$211,010)
Which of the following is one of the three variables proposed by a basic OB model which refers to actions that individuals, groups, and organizations engage in as a result of inputs?
a. Processes
b. Scrutinization
c. Planning
d. Association
e. Evaluation
Answer:
a. Processes
Explanation:
The variable that is being described as part of the basic OB model is known as Processes. Like mentioned, these are actions that individuals, groups, and organizations all engage in as a result of inputs, and that leads to certain outcomes. When dealing at an individual level, these processes include a wide range of actions including emotions, moods, motivation, perception, and decision making.
UA Hamburger Hamlet (UAHH) places a daily order for its high-volume items (hamburger patties, buns, milk, and so on). UAHH counts its current inventory on hand once per day and phones in its order for delivery 24 hours later. Determine the number of hamburgers UAHH should order for the following conditions:
Average daily demand 600
Standard deviation of demand 100
Desired service probability 99%
Hamburger inventory 800
Answer:
730 items
Explanation:
The objective of the given information is to determine the number of hamburgers UAHH should order for the following conditions:
Average daily demand 600
Standard deviation of demand 100
Desired service probability 99%
Hamburger inventory 800
The formula for a given order quantity in a fixed period of time can be expressed as :
[tex]q = \overline d(L+T)+ z \sigma_{L+T}-I[/tex]
where;
[tex]q[/tex] = order quantity = ???
[tex]\overline d[/tex] = daily demand average = 600
L = lead time in days = 1
T = time taken = 1
z = no of standard deviation = ???
[tex]\sigma_{L+T}[/tex] = standard deviation of usage in lead time and time taken = ???
I = present inventory level = 800
[tex]\sigma_{L+T}[/tex] = [tex]\sqrt 2[/tex] × standard deviation of daily demand
[tex]\sigma_{L+T}[/tex] = [tex]\sqrt{2} *100[/tex]
[tex]\sigma_{L+T}[/tex] = 1.4142 * 100
[tex]\sigma_{L+T}[/tex] = 141.42 items
From the Desired service probability 99% = 0.99; we can deduce the no of standard deviation by using the excel function (=NORMSINV (0.99))
z = 2.33
From [tex]q = \overline d(L+T)+ z \sigma_{L+T}-I[/tex]
[tex]q =600(1+1)+ 2.33*(141.42)-800[/tex]
[tex]q =600(2)+ 2.33*(141.42)-800[/tex]
[tex]q =1200+329.5086-800[/tex]
q = 729.5086 items
q ≅ 730 items
Therefore; the number of hamburgers UAHH should order from the following given conditions = 730 items
A $10,000 loan is being paid off by annual payments of $2,000 plus a smaller final payment. If the effective annual rate of interest is 15%, and the first payment is made one year after the time of the loan, find the amount of interest, $X, contained in the fifth payment.
Answer:
fifth payment $2,000
interests paid $1,125.50, principal paid $874.50
principal's balance $6,628.81
Explanation:
first payment $2,000
interests paid $1,500, principal paid $500
principal's balance $9,500
second payment $2,000
interests paid $1,425, principal paid $575
principal's balance $8,925
third payment $2,000
interests paid $1,338.75, principal paid $661.25
principal's balance $8,263.75
fourth payment $2,000
interests paid $1,239.56, principal paid $760.44
principal's balance $7,503.31
fifth payment $2,000
interests paid $1,125.50, principal paid $874.50
principal's balance $6,628.81
Loredo Company's net income for 2017 is $50,000. The only potentially dilutive securities outstanding were 1,000 options, each exercisable for one share at $6. None have been exercised, and 10,000 shares of common were outstanding during 2017. The average market price of Loredo's stock during 2017 was $10. The 1,000 options were issued on October 1, 2017. DEPS for 2017 is:__________.
a. $4.8
b. $4.55
c. $4.72
d. $4.95
e. $4.87
Answer:
DEPS for 2017 is: e. $4.87.
Explanation:
Diluted Earnings per Share = Earnings Attributable to Holders of Common Stock ÷ Average Number of Common Stocks Outstanding
Earnings Attributable to Holders of Common Stock = $50,000
Average Number of Common Stocks Outstanding :
Common Stocks Outstanding 10,000
Add Potential Common Stock ; Options (1,000 × 3/12) 250
Average Number of Common Stocks Outstanding 10,250
Thus,Diluted Earnings per Share = $50,000 ÷ 10,250
= $4.87