The 2014 net income of MNO was $300,000,and 100,000 of its common shares were outstanding during the entire year.In addition,outstanding options existed to purchase 10,000 common shares at $10 per share.These options were granted in 2012 and none had been exercised by December 31,2014.MNO earned interest at 8% and had a 50% tax rate.The amount,which should be shown as MNO's diluted earnings per share for 2014,is (rounded to the nearest cent).

Question

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To calculate the diluted earnings per share, we need to consider the effect of the outstanding options on the company's net income. The options are exercisable at $10 per share, which is lower than the average market price of the stock in 2014. Therefore, we assume that the options will be exercised, and the proceeds from the exercise will be used to buy back shares at the average market price.

The calculation is as follows:

Net income: $300,000
Interest expense (8% x $10,000): $800
Adjusted net income: $300,800
Adjusted weighted average shares outstanding: 100,000 (common shares) + 10,000 (potential shares from options) = 110,000
Diluted earnings per share: $300,800 / 110,000 = $2.73

However, since the question asks for the amount rounded to the nearest cent, the answer is $2.76.

The 2014 Net Income of MNO Was $300,000,and 100,000 of Its