At December 31, 2010, Dayplanner Inc. had 250,000 shares of common stock outstanding. On October 1, 2011, an additional 60,000 shares of common stock were issued for cash. Dayplanner also had 2,000,000 of 8 percent convertible bonds outstanding at December 31, 2011, which are convertible into 50,000 shares of common stock. The bonds are dilutive in the 2011 earnings per share computation. No bonds were issued or converted into common stock during 2011. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2011?

Question

Quizplus · Accepted Answer

- Begin with the number of shares outstanding at the end of the previous year: 250,000
- Add the shares issued during the year: 60,000
- The convertible bonds are dilutive, so we must add the additional shares that would arise from converting them: 50,000
- Total number of shares for diluted EPS calculation: 250,000 + 60,000 + 50,000 = 315,000