Horrocks Company granted 180,000 restricted stock awards of its no par common shares to executives,subject to forfeiture if employment is terminated within three years.Horrocks' common shares have a market price of $10 per share on January 1,2015,the grant date,and at December 31,2016,averaging $10 throughout the year.When calculating diluted EPS at December 31,2016,the net increase in the denominator of the EPS fraction will be:
A) 0 shares.
B)60,000 shares.
C)120,000 shares.
D)180,000 shares.

Question

Quizplus · Accepted Answer

The net increase in the denominator of the EPS fraction will be equal to the number of shares that would have been issued assuming the exercise of all outstanding stock options and the conversion of all convertible securities. Since the restricted stock awards are subject to forfeiture if employment is terminated within three years and have not been included in the computation of diluted EPS, their effect is not taken into consideration in the calculation. Therefore, the net increase in the denominator of the EPS fraction will be 120,000 shares, which is the number of shares that would have been issued assuming the conversion of all convertible securities.

Horrocks Company Granted 180,000 Restricted Stock Awards of Its No