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Corbit Corporations 2018 financial statements include the following discussion regarding its use of put options (from Note 9):

During 2016, the company implemented a stock repurchase program to repurchase up to 500,000 shares of stock. In conjunction with the companys stock repurchase program, the company issues put options that give the purchaser the right to sell shares of Corbit stock to the company at specified prices on specific dates. Recent plan activity is as follows:

Outstanding

Put Options

Balance, December 31, 2016 500,000

Options issued 0

Options exercised (100,000)

Balance, December 31, 2017 400,000

Options issued 0

Options exercised 0

Balance, December 31, 2018 400,000

Corbits stock price was $30 per share on 12/31/18, and the companys stock price averaged $32 per share during 2018. Assume that all outstanding put options are freely exercisable and that all of the outstanding put options on 12/31/18 have an exercise price of $36 per share. Also, assume that Corbits net income for 2018 was $10 million and that the companys weighted-average number of common shares outstanding for 2018 was 4.5 million. Corbit has no other potential common shares.

Required:

1. Explain and illustrate how the outstanding put options should be reflected in the 2018 diluted EPS calculation (provide the full citation(s) from the FASB codification that supports your answer).

2. Calculate Corbits basic and diluted EPS for 2018.

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