Question

The following events take place during the current year: January 1 40,000 shares of common stock outstanding March 1 Declares and distributes a 3 to 1 stock split May 1 Purchases 13,000 shares of stock for treasury Sells 10,000 shares of treasury stock October 1 Declares and issues a 20% stock dividend Compute the weighted average number of shares to be used for computing EPS by completing the below table. July 1 7 A- B I Date Change # of shares Months Restatement Total

Answer 1

Answer

No of shares 1-Jan-21 Shares Issued and outstanding 40,000 1-Mar-21 Stock split 3:1 80,000 1-May-21 Treasury stock (13,000) 1-Jul-21 Shares issued 10,000 1-Oct-21 Stock dividend 20% 23,400 140,400 Stock splits and stock dividends are applied to all shares issued prior to the split / dividend and to the weighted average number of shares at the beginning of the period. Existing Stock Dividend After Dividend Shares Issued and outstanding 120,000 24,000 144,000 Treasury stock (13,000) (2,600) (15,600) Shares issued 10,000 2,000 12,000 The second step is average out the number of month the shares were outstanding: # of Months 1-Jan-21 Shares Issued and outstanding 144,000 12 1,728,000 1-May-21 Treasury stock (15,600) 8 (124,800) 1-Jul-21 Shares issued 12,000 6 72,000 Sum 140,400 12 1,675,200 Weighted Average no of shares (1,675,200 / 12)= 139,600

1-Jan-21 Shares Issued and outstanding 1-May-21 Treasury stock 1-Jul-21 Shares issued Ratio # number of =Months/1 share Months 2 40,000 12 1.00 -13,000 8 0.67 10,000 6 0.50 WACS = restated Restatement shares x ratio 144,000 144,000 -15,600 -10,400 12,000 6,000 Balance WACS= 139,600