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, 2012, the grant date, and at December 31, 2013, averaging $10 throughout the year. When calculating diluted EPS at December 31, 2013, 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 the number of shares that would be required to repurchase the restricted stock awards at the average market price for the year. Since the awards have not yet vested and are subject to forfeiture, they are not included in the basic EPS calculation. Therefore, the net increase in the denominator will be 120,000 shares (180,000 awards x 2 years x 1/3).

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