The following information applies to the next three questions:
Tangier Corporation currently has stock rights outstanding for 2,000 common shares.The exercise price of these shares is $25.The options were issued in January of 2012.The average market price of the related common stock during the year 2012 was $30.The average market price of the related common stock during 2013 was $26 and during 2014 was $21.The company's fiscal year ends on December 31 of each year.
-How should these stock rights be treated in earnings per share calculations for the year ending December 31,2012?
A) The stock options are antidilutive and should not be included either in basic and diluted earnings per share.
B) The stock options are dilutive and should be included both in basic and diluted earnings per share.
C) The stock options are dilutive and should be included both in basic and diluted earnings per share in the amount of 333 shares.
D) The stock options are dilutive and should be included only in diluted earnings per share in the amount of 333 shares.

Question

Quizplus · Accepted Answer

The stock options are dilutive because the exercise price ($25) is less than the average market price ($30) in 2012. Therefore, they should be included in diluted earnings per share calculations, but not in basic earnings per share. The number of shares to be included is calculated using the treasury stock method, resulting in 333 shares.

The Following Information Applies to the Next Three Questions