Final answer:
The correct answer is option c. The correct date to use for the calculation of dilutive EPS for stock options issued on February 1, Year 1, is February 1, Year 1. This date reflects the point from which the dilutive effect of the options on EPS is to be measured.
Step-by-step explanation:
The student is asking about the calculation of the dilutive earnings per share (EPS) related to stock options. Specifically, the student wants to know which date should be assumed for the hypothetical exercise of the options when calculating dilutive EPS. The correct date to assume for the hypothetical exercise of stock options, for the purpose of calculating dilutive EPS, is the beginning of the reporting period or the date of issue if the options were issued during the period. Since the options were issued on February 1, Year 1, this would be the date to use for the dilutive EPS calculation.
To elaborate, the reason for using the date of February 1, Year 1, is that the calculation of dilutive EPS assumes that the options were exercised at the beginning of the period, or at the time of issuance, to understand the potential impact dilution would have on EPS throughout the entire period. Had the options been in place at the start of the year, January 1 would be the appropriate date. But as the options were issued on February 1, this is the effective date for the purpose of calculating dilution.
The multi-step process of computing dilutive EPS involves figuring out how many common shares would have been outstanding if the stock options had been exercised—the incremental shares. Then, the incremental shares are used to recalculate EPS as if those shares had been part of the company's common stock from the outset of the period (or the date of issue), which allows for a measure of the impact on the per-share earnings if the options were converted into common stock.
So, the correct option in the final answer is: c. February 1, Year 1.