JD Co Is a Calendar-Year Firm with 600 Million Common Shares

Essay

JD Co. is a calendar-year firm with 600 million common shares outstanding throughout 2009 and 2010. As part of its executive compensation plan, at January 1, 2008, the company had issued 60 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, 2011. The fair value of the options was estimated on the grant date to be $3 per option.
In 2009, JD began granting employees stock awards rather than stock options as part of its equity compensation plans and granted 30 million restricted common shares to senior executives at January 1, 2009. 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 2009 and 2010, respectively.
The stock options qualify for tax purposes as an incentive plan. The restricted stock does not. The company's net income was $240 million and $300 million in 2009 and 2010, respectively. Its income tax rate is 40%.
Required:
1. Determine basic and diluted earnings per share for JD in 2009.
2. Determine basic and diluted earnings per share for JD in 2010.