Question

Yoder, Incorporated, has 3,200,000 shares of common stock outstanding on

December 31, 2010. An additional 800,000 shares of common stock were issued on
April 1, 2011, and 400,000 more on July 1, 2011. On October 1, 2011, Yoder issued 20,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 20 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?
a. 4,000,000 and 4,000,000
b. 4,000,000 and 4,100,000
c. 4,000,000 and 4,400,000
d. 4,400,000 and 5,200,000

Answer 1

The number of shares to be used in computing basic earnings per share and diluted earnings per share is 4,400,000.

Step-by-step explanation:

In order to determine the number of shares to be used in computing basic earnings per share and diluted earnings per share, we need to consider the additional shares issued and the convertible bonds.

For basic earnings per share, we only consider the common shares outstanding. Therefore, the number of shares to be used is the sum of the common shares outstanding and the additional shares issued: 3,200,000 + 800,000 + 400,000 = 4,400,000 shares.

For diluted earnings per share, we also consider the potential dilutive effect of the convertible bonds. Since no bonds were converted into common stock in 2011, the number of shares to be used remains the same as the basic earnings per share calculation: 4,400,000 shares.