Question

III. Venz Company’s net income for 20x1 is $50,000. The only potentially dilutive securities outstanding were 1,000 options issued during 20x0, each exercisable for one share at $6. None has been exercised, and 10,000 shares of common were outstanding during 20x1. The average market price of Venz’s stock during 20x1 was $20. 1) Compute diluted EPS for 20x1. 2) Assume the same facts as those for Part 1), except that the 1,000 options were issued on October 1, 20x1 (rather than in 20x0). The average market price during the last three months of 20x1 was $20.

Answer 1

Ans 1
Diluted EPS= Net Income/Avg common stock outstanding+potential common stock
50000/(10000+701)	$4.67
If options are excerised 1000*6	6000
6000/20.1= 298.5 shares can be purchased
so dilutive shares are
1000-299	701
ans 2
Diluted EPS
50000/(10000+525)	$4.75
If issued on October 1
Dilutive potential shares 700*9/12	525
If options are excerised 1000*6
6000/20= 300 shares can be purchased
so dilutive shares are
1000-300	700
If any doubt please comment