Metlock Corporation reported net income of $445,050 in 2020 and had 198,000 shares of common stock outstanding throughout the year. Also outstanding all year were 45,000 options to purchase common stock at $12 per share. The average market price of the stock during the year was $15. Compute diluted earnings per share. (Round answer to 2 decimal places, e. g. 3.55.)

$2.15

Explanation:

The computation of diluted earnings per share is shown below:-

Diluted earnings per share = Net income attributable to common stockholder ÷ Diluted weighted number of shares

= $445,050 ÷ 207,000 shares

= $2.15

Working note 1:-

Common stock outstanding                     198,000

Add: Convertible options                            9,000

Weighted average number of shares         207,000

Working note 2:-  

Total option available (a)                  45,000

Purchase price per share (b)            $12

Average market price per share (c)  $15

Number of shares that can be purchased

d = (a × b) ÷ c                                   $36,000

Convertible options (a - d)               $9,000

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