Zacor Incorporated has 2,500,000 shares of common stock outstanding on December 31, 2010. An additional 500,000 shares of common stock were issued April 1, 2011, and 250,000 more on July 1, 2011. On October 1, 2011, Zacor issued 5,000, $1,000 face value, 7 percent 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?
A) 2,875,000 and 2,925,000
B) 2,875,000 and 3,075,000
C) 3,000,000 and 3,050,000
D) 3,000,000 and 3,200,000

Question

Quizplus · Accepted Answer

The basic EPS is calculated using the weighted average shares: 2,500,000 + (500,000 * 9/12) + (250,000 * 6/12) = 3,000,000. For diluted EPS, add potential shares from convertible bonds: 5,000 bonds * 40 shares = 200,000. So, 3,000,000 + 200,000 = 3,200,000.

Zacor Incorporated Has 2,500,000 Shares of Common Stock Outstanding on December