At December 31, 2010, Lefton, Inc. had 600,000 shares of common stock outstanding. On April 1, 2011, an additional 180,000 shares of common stock were issued for cash. Lefton also had $5,000,000 of 8% convertible bonds outstanding at December 31, 2010, which are convertible into 150,000 shares of common stock. The bonds are dilutive in the 2011 EPS computation. No bonds were issued or converted into common stock during 2011.
Using the information above, what is the number of shares that should be used in computing basic earnings per share for 2011?
A) 735,000
B) 780,000
C) 885,000
D) 910,000

Question

Quizplus · Accepted Answer

The basic EPS calculation uses the weighted average number of shares outstanding. For 2011, the calculation is: 600,000 shares outstanding for the full year plus 180,000 shares issued on April 1, weighted for 9 months (180,000 * 9/12 = 135,000). Therefore, 600,000 + 135,000 = 735,000 shares.