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Brick Co. has 170,000 shares of common stock outstanding at January 1, Year 5. On May 1, Year 5, it issued 30,000 additional shares of common stock. Outstanding all year were 12,000 shares of convertible cumulative preferred stock. Each share of the convertible preferred stock, which was dilutive in Year 5, is convertible into one share of Brick's common stock. What is the number of shares that Brick should use to calculate Year 5 diluted earnings per share

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Answer:

the number of shares that Brick should use to calculate Year 5 diluted earnings per share is 202,000 shares.

Explanation:

Diluted Earnings per share takes into account the potential voting rights in the calculation of the Weighted Average Number of Common Stocks Outstanding.

Weighted Average Number of Common Stocks Outstanding Calculation :

Outstanding at beginning of the Year                                         170,000

Issued May 1 : 30,000 × 8/12                                                         20,000

Convertible cumulative preferred stock                                        12,000

Weighted Average Number of Common Stocks Outstanding 202,000

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