Ayayai Corporation reported net income of $404,670 in 2020 and had 184,000 shares of common stock outstanding throughout the year. Also outstanding all year were 43,500 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

diluted earning per share = $2.1 per share

Explanation:

given data

net income = $404,670

stock outstanding = 184,000 share

outstanding all year =  43,500

common stock = $12 per share  

average market price = $15

solution

we get here diluted earning per share will be

diluted earning per share = net income attributable to common stock holder  ÷ diluted weight average no of share .........................1

here diluted weight average no of share is

diluted weight average no of share = common stock outstanding + convertible option   ..........2

here convertible option = total option available - no of share purchase

convertible option = 43500 - (43500×12 ÷15)

convertible option = 43500 - 34800 = 8700

so diluted weight average no of share = 184000 + 8700 = 192700

and

now put value in equation 1 we get

diluted earning per share =  

diluted earning per share = $2.1 per share

you have to put the parentheses like this:

in fact, you have to perform the operation inside parentheses first, and then proceed in order: