* * WHERE DOES THE 1.1 COME FROM IN THE EXPLANATION? * *

The Hall Corporation had 100,000 shares of common stock outstanding at the beginning of the year. Hall issued 30,000 shares of common stock on May 1. On July 1, the company issued a 10% stock dividend. On September 1, Hall issued 1,000, 10% bonds, each convertible into 21 shares of common stock. What is the weighted average number of shares to be used in computing basic and diluted EPS, assuming the convertible bonds are dilutive?

Average shares, basic

Average shares, dilutive

A)

132,000

139,000

B)

132,000

146,000

C)

139,000

146,000

Explanation

The new stock is weighted by 8 / 12. The bonds are weighted by 4 / 12 and are not affected by the stock dividend.

Basic shares = {[100,000 (12 / 12)] + [30,000 (8 / 12)]} 1.10 = 132,000

Diluted shares = 132,000 + [21,000 (4 / 12)] = 139,000

* * WHY DO WE USE 1.1?? * *

(LOS 21.g, 21.h)