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 diluted earnings per share for 2011?

Question

Quizplus · Accepted Answer

To compute diluted EPS, calculate the weighted average shares and add shares from convertible bonds. Weighted average shares: 600,000 + (180,000 * 9/12) = 735,000. Add 150,000 shares from convertible bonds: 735,000 + 150,000 = 885,000.