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Question:

A company had the following changes in its stock:
The company had 2 million shares outstanding on December 31, 20X6. '
On March 31, 20X7, the company paid a 10% stock dividend.
On June 30, 20X7, the company sold $10 million face value of 7% convertible debentures, convertible into common at $5 per share.
On September 30, 20X7, the company issued and sold 100,000 shares of common stock.
The company should compute its 20X7 basic earnings per share based on:

A 2,225,000 shares.
explanation

1212Basic EPS does not consider potential dilution from convertible bonds.
Original shares = 2,000,000(12) = 24,000,000
+ Stock dividend = 200,000(12) = 2,400,000
+ New shares = 100,000(3) = 300,000

Alternatively, 2 million (1.1) + (1/4) (100,000) = 2.225 million.

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