Bedard Corporation reported net income of $445,050 in 2020 and had 198,000 shares of common stock outstanding throughout the year. Also outstanding all year were 45,000 options to purchase common stock at $12 per share. The average market price of the stock during the year was $15. Required:
Compute diluted earnings per share.

$2.35

Explanation:

Convertible option = Total options available - [Total options available*Purchase price per share / Average market price per share]

Convertible option = 45,000 - [45,000*12/15]

Convertible option = 45,000 - 36,000

Convertible option = 9,000 shares

Weighted average number of shares = Common stock outstanding - Convertible option

Weighted average number of shares = 198,000 - 9,000

Weighted average number of shares = 189,000

Diluted earnings per share = Net income attributable to common stockholders / Weighted average number of shares

Diluted earnings per share = $445,050 / 189,000 shares

Diluted earnings per share = $2.354761905

Diluted earnings per share = $2.35

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