The following information relates to the Simplex Company for 2011:

What is diluted earnings per share?
A) $1.00
B) $0.89
C) $0.81
D) $0.76

Question

The following information relates to the Simplex Company for 2011:

What is diluted earnings per share?
A) $1.00 
B) $0.89 
C) $0.81 
D) $0.76

Quizplus · Accepted Answer

Diluted earnings per share is calculated by dividing the net income available to common shareholders by the weighted average number of common shares outstanding, adjusted for any dilutive securities. According to the information provided, the net income available to common shareholders is $89 million and the weighted average number of common shares outstanding is 100 million. However, there are also 10 million potentially dilutive shares from convertible bonds. If we assume all these shares are converted, the weighted average number of common shares outstanding becomes 110 million. Therefore, diluted earnings per share is ($89 million / 110 million) = $0.81. The closest option is B) $0.89, but this is the basic earnings per share and not the diluted earnings per share.

The Following Information Relates to the Simplex Company for 2011