Diluted Earnings Per Share Calculation: Marigold Corp. Stock Options

To compute diluted earnings per share (EPS) for 2018, we need to consider the impact of potentially dilutive securities, such as stock options, on the number of shares outstanding.

Shares outstanding at December 31, 2017: 1,000,000 Shares issued on July 1, 2018: 1,000,000

Total shares before considering stock options: 2,000,000

However, we need to consider the impact of the stock options on the number of shares outstanding. The stock options allow the holders to purchase 306,000 shares of common stock at $21 per share. Since the average market price of Marigold's common stock was $28 during 2018, the stock options are considered dilutive.

To determine the number of additional shares, we divide the number of stock options by the assumed exercise price of the options:

Additional shares = Number of stock options = 306,000

The diluted number of shares outstanding is the total shares before considering stock options plus the additional shares:

Diluted shares outstanding = Total shares + Additional shares = 2,000,000 + 306,000 = 2,306,000

Therefore, the number of shares to be used in computing diluted earnings per share for 2018 is 2,306,000. The correct answer is 2,306,000.