January 1, 2021, Woody Forrest Corporation granted executive stock options to purchase 41,000 of its common shares at $9 each. The market price of common stock was $24 per share on December 31, 2021, and averaged $12 per share during the year then ended. There was no change in the 164,000 shares of outstanding common stock during the year. Net income for the year was $39,000. The number of shares to be used in computing diluted earnings per share for the quarter is:

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andromache andromache · Answer 1 · 2020-05-16T05:09:52+02:00

Answer:

174,250 shares

Explanation:

The computation of the number of shares to be used in computing diluted earnings per share is shown below:

Proceeds from exercise of options (a) $369,000 (41,000 shares × $9)

Used to repurchased for common stock (b) 30,750 shares (41,000 shares × $9 ÷ $12)

Number of shares for exercised (c) 41,000 shares

Less: repurchased shares (d) -30,750 shares

Diluted common shares {e = c - d} 10,250 shares

Add: Common shares (f) 164,000 shares

Total number of shares for diluted earning per share 174,250 shares

We ignored the market price of common stock as it is not relevant.