Homework Answers
Basic Earnings Per Share is calculated by using the weighted average number of shares at the end of period. It does not consider any potential common shares conversion in future.
Calculation of Weighted Average Number of Shares
|
Issuance Date |
Number of Shares |
Multiplying factor (Average Outstanding in Year) |
Weighted Average Shares |
|
Beginning balance |
2900000 |
12 / 12 |
2,900,000 |
|
July.1, 2018 |
150000 |
6 / 12 |
75,000 |
|
Oct.1, 2018 |
300000 |
3 / 12 |
75,000 |
|
Weighted Average Shares |
3,050,000 |
Weighted Average Shares to be used in computing basic earnings per share = 3,050,000 Shares
Number of Shares to be used to calculate diluted earnings per share
Weighted Average Shares for Basic Earnings per share = 3,050,000
Potential Weighted average shares = 8,000 * 40 * 9 months / 12 months
= 240,000
Number of Shares to be used to calculate diluted earnings per share = $3,050,000 + 240,000
= 3,290,000 Shares
So the correct answer is c. 3,050,000 and 3,290,000
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