Question

6) When calculating diluted earnings per share, the effect of stock options: A) Will increase the numerator, but never effect the denominator. B) Is included if antidilutive. C) Is included if dilutive.. D) Will never effect diluted earnings per share and can be ignored. DDIOHO ntla n 7) Dulce Corporation had 200,000 shares current year. There were also fully vested options for 10,000 shares of common stock with an exercise price of $20. The market price of the common stock averaged $25 for the year. Net income was $4 million. What is diluted EPS (rounded to the nearest cent)? A) $19.80. common stock outstanding during the batulib D) $19.23. C) $20.00. B) $19.05. agnA 810 ghu 8) Throughout 2018, Long had 1,000 shares of common stock outstanding. am or 800,0212 On January 1, 2018, Long Co. issued bonds in the principal amount of $20,000 with a 4% annual interest rate. The bonds are convertible into 1,000 shares of Long's common stock Long's 2018 net income was $2,000 and its income tax rate was 50%. Long's diluted earnings per share for 2018 would be: B) $1.40. C) $1.00. D) $1.20 A) $2.00. 9) The following information pertains to Torque Corp.'s outstanding stock for 2018: 9) -Common stock outstanding at January 1, 2018: 60,000 shares -100 % stock dividend declared on April 1, 2018 -New shares issued on July 1, 2018: 30,000 shares How many shares should Torque use to calculate 2018 basic carnings per share? A) 90,000 B) 135,000 C) 150,000 D) 162,000 10) Which of the following would be an acceptable approach(es) for accounting for/ reporting a change in accounting principle? A) Prospective method B) Modified retrospective and retrospective methods. C) Aggregate method. D) Revision method. 10) B-2

Answer 1

Question No. - (6) - Answer -

Step - (1) - Information Given -

When computing diluted earnings per share, the effect of stock options:

• Option- (A) - Will increase the numerator, but never effect the denominator.
• Option- (B) - Is included if antidilutive.
• Option- (C) - Is included if dilutive.
• Option- (D) - Will never effect diluted earnings per share and can be ignored.

.

Step - (2) - Analysis and Conclusion -

Diluted earnings per share is a calculation used to gauge the quality of a company's earnings per share, if all convertible securities were exercised.

Convertible securities are all outstanding convertible preferred shares, convertible debentures, stock options, and warrants.

Therefore, if stock options are dilutive, then its effect should be considered while computing the Diluted earnings per share.

Hence, Option - (C) - Is included if dilutive, is Correct.