Question

Company A has 279,000 basic shares outstanding and 26,000 outstanding options and warrants. The exercise price of these options is $3.75. The company also has $200,000 of convertible bonds with an effective conversion price of $4.00. The average market share price for the reporting period is $7.50. What is the diluted shares outstanding using the treasury stock method

Answer 1

Answer:

c. 342,000

Explanation:

Missing question and Multiple Option " & if-converted methods?  305,000, 292,000, 342,000, 345,333"

Proceeds expected if option are exercised = No of outstanding options and warrants * Per share exercise price

Proceeds expected if option are exercised = 26,000 * $3.75

Proceeds expected if option are exercised = $97,500

Number of treasury shares expected to be purchased = Proceeds expected if option are exercised  / Average market price per share

Number of treasury shares expected to be purchased = $97,500 / $7.50

Number of treasury shares expected to be purchased = $13,000

Number of new shares issued if conversion is effected = Amount of convertible bonds reported / Effective conversion price per share

Number of new shares issued if conversion is effected = $200,000 / $4

Number of new shares issued if conversion is effected = 50,000

Calculation of the Diluted Share Outstanding

Number of basic shares outstanding                                   279,000

Add: Number of new shares through options                     26,000

Add: Number of new shares through conversion issued   50,000

Less: Number of treasury shares to be purchased             (13,000)  

Diluted Share Outstanding                                                   342,000

Answer 2

The diluted shares outstanding using the treasury stock method is 342,000 shares.  

Diluted Share Outstanding

Basic shares outstanding                         279,000

Add Options   shares                                26,000

Add Conversion shares                             50,000

($200,000/$4)

Less  Treasury shares                                (13,000)  

[(26,000 ×$3.75)/$7.50]

Diluted Share Outstanding                         342,000

Inconclusion the diluted shares outstanding using the treasury stock method is 342,000 shares.

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