Question
Hitch City Corporation recorded Net Income for 2018 at $150,000. The only potentially dilutive securities outstanding were 1,000 call options issued during 2017, with each
Hitch City Corporation recorded Net Income for 2018 at $150,000. The only potentially dilutive securities outstanding were 1,000 call options issued during 2017, with each option being exercisable for one share at $20. None have been exercised, and 30,000 common shares were outstanding during 2017. The average market price of the companys shares during 2018 was $25.
Required:
1. Calculate diluted earnings per share for the year ended December 31, 2018.
2. Assuming that the 1,000 call options were instead issued on November 1, 2018 (rather than in 2017), calculate diluted earnings per share for the year ended December 31, 2018. The average market price during the last two months of 2017 was $25.
3. How would your answers for parts (1) and (2) change if, in addition to the information for parts (1) and (2), the company issued 1,000 put options with an exercise price of $15?
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