At January 1, Year 1, under its restricted stock unit (RSU) plan, Label Corporation grants RSUs representing 10,000 of its $1 par common shares to executives. The shares are subject to forfeiture if employment is terminated within a five-year vesting period. Shares have a current market price of $10 per share and their average market price during Year 1 was $20 per share. What is the number of shares that will be added to the denominator of diluted EPS for Year 1?

The number of shares that will be added to the denominator of diluted EPS for Year 1 is 6,000 shares

Explanation:

For computing the added shares, first we have to compute per year expenses, than repurchased shares, afterwards, final amount will be come

Per year expenses = (Number of shares * price per share) : (Vesting period)

= (10,000 shares * $10) : (5 years)

= $20,000

The remaining expenses after one year would be equal to

= Total expenses - annual expenses

= $100,000 - $20,000

= $80,000

Now the repurchased shares would be

= (Remaining expenses) : (average market price)

= ($80,000) : ($20)

= 4,000 shares

So, the diluted shares would be

= 10,000 shares - 4,000 shares

= 6,000 shares