Question

On January 1, 2021, Hage Corporation granted incentive stock options to purchase 18,000 of its common shares at $7 each. The options are exercisable after one year. The market price of common averaged $9 per share during the quarter ending on March 31, 2021. There was no change in the 100,000 shares of outstanding common stock during the quarter ended March 31, 2021. Net income for the quarter was $8,268. The number of shares to be used in computing diluted earnings per share for the quarter is:

Answer 1

Answer:

104,000

Explanation:

The computation of diluted earnings per share for the quarter is shown below:-

Particulars                                                    Shares

Proceeds from exercise of options a         $126,000

(18,000 × $7)

Used to repurchase of common stock b    $14,000

( $126,000 ÷ $9)

Number of shares if option is exercised c  18,000

Less: Shares assume repurchased d           14,000

Potential Diluted common shares (e = c-d)  4,000

Add: Number of common shares f               100,000

Number of shares diluted earning per share 104,000

(e + f)

So, to reach the Number of shares diluted earning per share we simply add number of number of common shares with potential diluted common shares.