What should be done with outstanding stock options when computing diluted earnings per share?

• Consider them only when the option exercise price is less than the average market price for the period.
• Consider them only when the option exercise price is greater than the average market price for the period.
• Consider them only when they were actually exercised during the period.
• Ignore them; options are considered only in computing basic earnings per share.

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When computing diluted earnings per share, stock options are ________.

• Recognized only if they were exercised
• Ignored
• Recognized only if they are antidilutive
• Recognized only if they are dilutive

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When computing diluted earnings per sharefor a company with a complex capital structure, what is the denominator in the computation?

• Weighted-average number of common shares outstanding plus shares associated with dilutive securities
• Maximum number of common shares outstanding during year, minus shares computed using the if-converted method
• Maximum number of common shares outstanding during year, minus shares computed using the treasury stock method
• Weighted-average number of common shares outstanding plus shares associated with antidilutive securities

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In computing diluted earnings per share, what should be done with the interest expense associated with convertible debt?

• If the convertible debt is antidilutive, add interest expense, net of income taxes, to net income.
• If the convertible debt is dilutive, add interest expense, net of income taxes, to net income.
• If the convertible debt is antidilutive, subtract interest expense, net of income taxes, from net income.
• If the convertible debt is dilutive, subtract interest expense, net of income taxes, from net income.

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Pine Valley Company had 150,000 shares of common stock issued and outstanding January 1, 20X1. On July 1, 20X1, an additional 25,000 shares of common stock were issued for cash. Pine Valley also had unexercised stock options to purchase 20,000 shares of common stock at $15 per share outstanding at the beginning and end of 20X1. The average market price of Pine Valley's common stock was $20 in 20X1.

What number of shares should be used in computing diluted earnings per share for the year ended December 31, 20X1?

• 167,500
• 177,500
• 182,500
• 180,000

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On January 1, 20X1, Elberta Company issued $50,000 of 4% convertible bonds, in total, into 5,000 shares of Elberta's common stock. No bonds were converted during 20X1. Throughout 20X1 Elberta had 5,000 shares of common stock outstanding. Elberta's 20X1 net income was $5,000. Elberta's income tax rate is 40 percent. No potentially dilutive securities other than the convertible bonds were outstanding during 20X1.

What is Elberta's diluted earnings per share for 20X1?

• $0.58
• $1.16
• $0.62
• $0.70

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Deweyville Company had 200,000 shares of common stock and 10,000 shares of cumulative, $6 preferred stock outstanding during 20X1. The preferred stock is convertible at the rate of 20 shares of common per share of preferred. For 20X1, the company had net income of $160,000 and declared no dividends. What should Granger report for the 20X1 diluted earnings per share?

• $0.30
• $0.58
• $0.40
• $0.60

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On January 1, 20X1, Deseret Company had 190,000 shares of common stock outstanding. On October 1, 20X1, an additional 70,000 shares of common stock were issued for cash. Deseret also had 2,000,000 of 8% convertible bonds outstanding throughout 20X1. These bonds are convertible into 55,000 shares of common stock. It has been determined that these convertible bonds were DILUTIVE in 20X1.

What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 20X1?

• 262,500
• 175,000
• 205,000
• 160,000

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On January 1, 20X1, Woodruff Company had 600,000 shares of common stock outstanding. On September 1, 20X1, an additional 400,000 shares of common stock were issued. In addition, Woodruff had $20,000,000 of 8% convertible bonds outstanding throughout the year. These bonds are convertible into 400,000 shares of common stock. The net income for the year ended December 31, 20X1, was $7,000,000. The income tax rate is 40%.

What is Woodruff's diluted earnings per share for the year ended December 31, 20X1?

• $5.00
• $7.02
• $7.59
• $6.18

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The 20X1 net income of Kanarraville Company was $200,000. The company had 100,000 shares of its common stock outstanding during the entire year. In addition, throughout the year there were outstanding options to purchase 10,000 shares of common stock at $10 per share. The average market price of Kanarraville's common stock during 20X1 was $25 per share.

What is Kanarraville's diluted earnings per share for 20X1?

• $1.89
• $2.00
• $1.95
• $1.82