Assume a company had net income of $20,000 and 8,000 shares of common stock outstanding the entire year.Also assume there were two potentially dilutive issues outstanding for the entire year:

What is diluted earnings per share for this company for the year?

Question

Assume a company had net income of $20,000 and 8,000 shares of common stock outstanding the entire year.Also assume there were two potentially dilutive issues outstanding for the entire year:

What is diluted earnings per share for this company for the year?

Quizplus · Accepted Answer

To calculate diluted earnings per share, we need to use the treasury stock method for potentially dilutive issues:
For Option A: (2,000 shares)
Diluted shares = 8,000 + (2,000 - (0.40 x 2,000)) = 8,880
For Option B: (800 shares)
Diluted shares = 8,000 + 800 = 8,800
Adjusted net income for both issues = $20,000
Diluted earnings per share = $20,000 / 8,880 = $2.25
Therefore, the correct answer is C) $2.11 since option B is incorrect.

Assume a Company Had Net Income of $20,000 and 8,000