The company had 100,000 shares of common stock outstanding throughout the year. In addition, as of January

Question:

The company had 100,000 shares of common stock outstanding throughout the year. In addition, as of January 1, the company had issued stock options that allowed employees to purchase 40,000 shares of common stock. The option exercise price is $10 per share. The company has no other potentially dilutive securities. Net income for the year was $200,000. Compute diluted earnings per share, assuming that

(1) The average stock price for the year was $16 and

(2) The average stock price for the year was $7.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...