EXERCISES

Solution 16-141 (Cont.)

Note that the convertible security is antidilutive:

Bond interest after taxes $245,000

————————————— = ———— = $2.45
Assumed incremental shares 100,000

Ex. 16-142—Diluted earnings per share.

Dunbar Company had 400,000 shares of common stock outstanding
during the year 2011. In addition, at December 31, 2011, 90,000 shares
were issuable upon exercise of executive stock options which require a
$40 cash payment upon exercise (options granted in 2009). The average
market price during 2011 was $50.

Instructions
Compute the number of shares to be used in determining diluted
earnings per share for 2011.

Solution 16-142
Shares outstanding 400,000
Add: Assumed issuance 90,000
490,000
Deduct: Proceeds/Average market price ($3,600,000 ÷ $50) (72,000)
Number of shares 418,000