Computing EPS: Contingently Issuable Shares

On January 1, to motivate top management, Reezz Inc. granted 1,000 options to purchase common stock at $10 per share to key officers if net income increased by 5% over the prior year. The fair value of the options on January 1 is estimated to be $5,000. Reezz Inc. reported net income of $50,000 for the year, which represented a 7% increase over the prior year. How will the options affect the denominator in the calculation of the companys diluted earnings per share?

Increase the denominator by 0 shares