Question

Four years ago, Wade Corporation granted incentive stock options to purchase 28,000 of its common shares at $7 each. The options are exercisable beginning this year. The market price of common shares averaged $10 per share during the year. There was no change in the 250,000 shares of outstanding common stock during the year. What is the number of shares to be used in computing diluted earnings per share for the year?

Answer 1

number of shares to be used in computing diluted earnings per share for the year is 258400 shares

Step-by-step explanation:

given data

granted incentive stock = 28,000

common shares = $7 each

market price of common shares averaged = $10 per share

outstanding common stock = 250,000 shares

to find out

number of shares to be used in computing diluted earnings

solution

we get incremental outstanding share will be here

incremental outstanding share =
`(market price - common share price)/(market price)` × granted incentive stock .................1

put here value we get

incremental outstanding share =
`(10-7)/(10)` × 28000

incremental outstanding share = 8400 shares

so

number of shares to be used in computing diluted earnings per share for the year is = incremental outstanding share + outstanding common stock

number of shares to be used in computing diluted earnings per share for the year is = 250000 + 8400

number of shares to be used in computing diluted earnings per share for the year is 258400 shares