Situation:
In 2010, its first year of operations, Tara Corporation appropriately reported basic earnings per share of $1.05 on its income statement. During 2011 the company instituted a share option plan and is required to report both basic and diluted earnings per share of $1.12 and $0.98, respectively, on its 2011 income statement. In its 2011 annual report, Tara Company presents comparative income statements for 2010 and 2011.
Directions:
Research the related generally accepted accounting principles and prepare a short memo to Tara Corporation's president that explains how to report the 2010 and 2011 comparative earnings per share in its 2011 annual report. Cite your reference and applicable paragraph numbers.