Warrants exercisable at $15 each to obtain 25,000 shares of common stock were outstanding during a period when the average and year-end market price of the common stock was $30.Application of the treasury stock method for the assumed exercise of these warrants in computing diluted earnings per share will increase the weighted-average number of outstanding common shares by
A) 5,000
B) 10,000
C) 11,000
D) 12,500

Question

Quizplus · Accepted Answer

The treasury stock method assumes that the proceeds from the exercise of the warrants are used to repurchase shares at the average market price. Exercising 25,000 warrants at $15 each provides $375,000. At an average market price of $30, this amount can repurchase 12,500 shares. Therefore, the net increase in shares is 25,000 - 12,500 = 12,500 shares.

Warrants Exercisable at $15 Each to Obtain 25,000 Shares of Common