On January 1,2016,Hage Corporation granted incentive stock options to purchase 18,000 of its common shares at $7 each.The options are exercisable after one year.The market price of common averaged $9 per share during the quarter ending on March 31,2016.There was no change in the 100,000 shares of outstanding common stock during the quarter ended March 31,2016.Net income for the quarter was $8,268.The number of shares to be used in computing diluted earnings per share for the quarter is:
A)100,000.
B)104,000.
C)106,000.
D)118,000.

Question

Quizplus · Accepted Answer

The average market price during the quarter is greater than the exercise price, so the options are considered to be in-the-money. Therefore, the number of shares to be used in computing diluted earnings per share is the sum of the outstanding shares and the number of shares that could be purchased with the options that are currently in-the-money. In this case, the number of shares that could be purchased with the options that are currently in-the-money is 18,000. Therefore, the number of shares to be used in computing diluted earnings per share is 100,000 + 18,000 = 104,000.

On January 1,2016,Hage Corporation Granted Incentive Stock Options to Purchase