The following information pertains to J Company\'s outstanding stock for 2018: C
ID: 2536015 • Letter: T
Question
The following information pertains to J Company's outstanding stock for 2018:
Common stock, $1 par
Shares outstanding, 1/1/2018
10,000
2 for 1 stock split, 4/1/2018
10,000
Shares issued, 7/1/2018
5,000
Preferred stock, $100 par, 7% cumulative
Shares outstanding, 1/1/2018
4,000
What is the number of shares J should use to calculate 2018 basic earnings per share?
20,000.
22,500.
25,000 .
27,000.
Common stock, $1 par
Shares outstanding, 1/1/2018
10,000
2 for 1 stock split, 4/1/2018
10,000
Shares issued, 7/1/2018
5,000
Preferred stock, $100 par, 7% cumulative
Shares outstanding, 1/1/2018
4,000
Explanation / Answer
Number of Shares outstanding as on 1st April = 10,000
Due to Stock Split the number of shares outstanding as on date of stock split should be changed to give impact of Stock Split.
Hence in our case 2 shares for 1 held is issued hence revised opening shares would be 20,000 (10,000*2)
Hence 20,000 is outstanding for the entire year.
Again on 1st July additional 5000 shares are issued and this shares remain outstanding for a period of 6 months i.e. from July to December
Hence Weighted Average Number of Shares Outstanding = ((20,000*12)+(5000*6))/12 = 22,500 Shares.
Hence option B is correct
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