Question

Grimm Company has 1,800,000 shares of common stock outstanding on December 31, 2010. An additional 150,000 shares of common stock were issued on July 1, 2011, and 300,000 more on October 1, 2011. On April 1, 2011, Grimm issued 6,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 40 shares of common stock. No bonds were converted into common stock in 2011. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively, for the year ended December 31, 2011?

a. 1,950,000 and 2,130,000
b. 1,950,000 and 1,950,000
c. 1,950,000 and 2,190,000
d. 2,250,000 and 2,430,000

Answer 1

The number of shares used in computing basic and diluted earnings per share for the year ended December 31, 2011 is 2,250,000 shares.

Step-by-step explanation:

The number of shares to be used in computing basic earnings per share for the year ended December 31, 2011 is calculated by adding the shares outstanding at the beginning of the year (1,800,000 shares) to the shares issued during the year (150,000 shares + 300,000 shares), resulting in a total of 2,250,000 shares.

The diluted earnings per share takes into account the convertible bonds. Since no bonds were converted into common stock in 2011, the number of shares used for diluted earnings per share is the same as the basic earnings per share, which is 2,250,000 shares.