At December 31,2013,Rightoff,Inc.had 600,000 shares of common stock outstanding.On April 1,2014,an additional 180,000 shares of common stock were issued for cash.Rightoff also had $5,000,000 of 8% convertible bonds outstanding at December 31,2013,which are convertible into 150,000 shares of common stock.The bonds are dilutive in the 2014 EPS computation.No bonds were issued or converted into common stock during 2014.
-Using the information above,what is the number of shares that should be used in computing basic earnings per share for 2014?

Question

Quizplus · Accepted Answer

The basic earnings per share (EPS) calculation only includes actual shares of common stock outstanding. It does not consider the potential conversion of convertible securities into common stock. At the beginning of 2014, Rightoff, Inc. had 600,000 shares outstanding. On April 1, 2014, an additional 180,000 shares were issued. The weighted average number of shares for 2014 is calculated as follows: 600,000 shares for the entire year plus 180,000 shares for nine months (since they were issued on April 1). The calculation is 600,000 + (180,000 * 9/12) = 600,000 + 135,000 = 735,000 shares.