CHAPTER $15$: DILUTION AND EPS $(14$ POINTS$)$

$1.$ Dilution impacts the equity owners of a company and during lecture we learned there is good dilution and

bad dilution, explain the difference. $[1$ point$]$

$2.$ Name the two types of securities that we discussed during lecture that may cause dilution and explain why.

Also generally describe the method that each security would use to determine the dilutive effect. $[2$ points$]$

$3.$ Company A has $4,000,000$ shares of common stock issued and outstanding and the current market price of

their common stock per share is $$80.$ Company A issued stock options with an average exercise price of $$90$

per share for $1,000,000$ common shares and stock options with an average exercise price of $$55$ per share

for $500,000$ common shares. Compute the amount of additional dilutive share of common stock using the

treasury method. $[$Hint: Remember only in$-$the$-$money options are dilutive.$]$ You must show your work for

credit. $[3$ points$]$

$4.$ Based on the following common stock events compute the number of common shares that would be used in

computing basic earnings per shares $[$known as weighted$-$average common shares outstanding$].$ You must show

your work for credit. $[4$ points$]$

$5.$ Refer to Tesla, Inc.$$s $2022$ Form $10$K and specifically item $8,$ Financial Statements and Supplementary Data,

which is included in the financial information section of course documents included in Canvas.

A$.$ What was Tesla$$s $(1)$ basic $ earnings per share and $(2)$ diluted $ earnings per share for the year

ended December $31,2022?[$Hint: Read Tesla$$s consolidated statement of operations $($income

statement$).]((1)/(2)$ point$)$

Common

Shares

Outstanding

Beginning balance of common stock at $12/31/2020600,000$

$250,000$

$35,000$

$(100,000)$

$12/31/2021$ ending balance of common stock $785,000$

On June $30,2021$ some of the company's preferred

shareholders converted into common stock

On September $30,2021$ the company repurchased

some its common stock

On March $31,2021$ the company completed a public

offering of common stock

ACCT $321$ CHAPTER $15$ HANDOUT SOLUTIONS $|$ PAGE $2$

B$.$ For the year ended December $31,2022$ Tesla used $3,130$ million common shares in computing its

basic earnings per share. On the December $31,2022$ balance sheet in the common stock line item of

the stockholders$$ equity section states Tesla had $3,164$ million in common shares outstanding. Why

did Tesla use the $3,130$ million shares and not the $3,164$ million shares to compute its basic earnings

per share? $(1$ point$)$

C$.$ Why did Tesla use $3,475$ million common shares for its fully diluted earnings per share computation

instead of the $3,130$ million shares for the year ended December $31,2022?((1)/(2)$ point$)$