Question

Swifty Corporation had 1,000,000 shares of common stock issued and outstanding at December 31, 2020. On...

Swifty Corporation had 1,000,000 shares of common stock issued and outstanding at December 31, 2020. On July 1, 2021 an additional 1,000,000 shares were issued for cash. Swifty also had stock options outstanding at the beginning and end of 2021 which allow the holders to purchase 291000 shares of common stock at $28 per share. The average market price of Swifty’s common stock was $35 during 2021. The number of shares to be used in computing diluted earnings per share for 2021 is:

2058200

1738200

1558200

2238200

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Answer #1

291,000 stock options would increase the number of shares outstanding by 291,000.

291,000 * $28 stock option price = $8,148,000

$8,148,000 / $35 average share market price = 232,800 shares of treasury stock would be repurchased.

Dilutive effect = 291,000 - 232,800

= 58,200

The number of shares to be used in computing diluted earnings per share = 1,000,000 common shares outstanding + 500,000 (1,000,000 * 6 / 12) common shares issued + 58,200 dilutive effect

= 1,558,200

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