Diluted Earnings per Share with Exercise of Stock Options
As of January 1, 2008, Anvil Corporation had 25,000 shares of $10 par common stock outstanding. The company had issued stock options in 2006 to its management personnel, permitting them to acquire 4,000 shares of common stock at $12 per share. At the time of the issuance, common stock was selling for $12 per share. The market price of common stock was $25 on September 1, 2008, and the average price for 2008 was $27. Income before extraordinary items for 2008 was $142,400. The company also had an extraordinary gain of $21,000,net of taxes. Terms of the options make them currently exercisable. On September 1, 2008, options to acquire 1,500 shares were exercised. The other 2,500 options are still outstanding at December 31, 2008.
Instructions: Compute basic and diluted EPS for the year ended December 31, 2008.