Sunland Company had 1570000 shares of common stock issued and outstanding at December 31, 2020. On July 1, 2021 an additional 1259000 shares were issued for cash. Sunland also had stock options outstanding at the beginning and end of 2021 which allow the holders to purchase 373000 shares of common stock at $15 per share. The average market price of Sunland's common stock was $20 during 2021. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2021?

3,202,000 shares.

Explanation:

Diluted earning per share (EPS) is an EPS that is calculated using both the common stock and all convertible securities like convertible preferred stock, convertible debt, equity options, warrants, or convertible bonds which are converted into common stock or equity.

Diluted EPS is different from an EPS that is calculated using only the common stock.

From the common stock, the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2021 are the addition of all the shares obtained as follows:

Number of shares for diluted EPS = 1,570,000 + 1,259,000 + 373,000

= 3,202,000 shares.

Therefore, the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2021 is 3,202,000 shares.