Question

On January 1, 2022, Poplar Corporation granted incentive stock options to purchase 22,000 of its common shares at $7 each. The options are exercisable after one year. The market price of common averaged $10 per share during the quarter ending on March 31, 2018. There was no change in the 160,000 shares of outstanding common stock during the quarter ended March 31, 2022. Net income for the quarter was $8,668. The number of shares to be used in computing diluted earnings per share for the quarter is: (Round your final answer to whole number.)

Answer 1

Answer: 166,600 shares

Step-by-step explanation:

First we calculate the proceeds from exercising the option.

That would be,

= 22,000 * $7

= $154,000

Using the market price we can then find out how many shares were purchased

= 154,000/10

= 15,400 shares.

Remember that the number of shares if the options were exercised is 22,000 shares. So to find out the dilation we subtract the number of shares purchased from the number of shares if the options were exercised. This would be,

= 22,000 - 15,400

= 6,600 shares

We can now add the common stock numbers to that figure to find out the number of shares to be used in computing diluted earnings per share for the quarter.

= 6,600 + 160,000

= 166,600 shares

The number of shares to be used in computing diluted earnings per share for the quarter is 166,600 shares.