Situation In 2007, its first year of operations, Tara Corporation appropriately reported basic earnings per share of $1.05 on its income statement. During 2008 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 2008 income statement. In its 2008 annual report, Tara Company presents comparative income statements for 2007 and 2008.

Directions

Research the related generally accepted accounting principles and prepare a short memo to Tara Corporation’s president that explains how to report the 2007 and 2008 comparative earnings per share in its 2008 annual report. Cite your reference and applicable paragraph numbers.