Fully vested, incentive stock options to obtain 30,000 shares of common stock at an exercise price of $20 were outstanding during a period when the average market price of the common stock was $25. When computing diluted earnings per share, the weighted average number of common shares outstanding will increase by:
a. 6,000
Items 2 and 3 are based on the following:
At December 31, 2012, Destin Sports Equipment had 200,000 common shares issued and outstanding. On May 31, 2013, Destin issued a 15% stock dividend. Fully vested, incentive stock options issued in 2011 and exercisable for 40,000 shares (adjusted for the stock dividend) were outstanding at the end of 2013, with an exercise price of $40 per share. The market price of Destin's common stock averaged $50 per share during 2013. Also outstanding since 2007 were $100,000 of 10% bonds issued at face value and convertible into 30,000 common shares. Destin's tax rate is 40% and 2013 net income was $550,000.
__ 2. What is Destin's 2013 basic earnings per share? b. $2.39
__ 3. What is Destin's 2013 diluted earnings per share? a. $2.07