[shawnl112]

Deck Co. had 120,000 shares of common stock outstanding at January 1, Year 2. On July 1, Year 2, it issued 40,000 additional shares of common stock. Outstanding all year were 10,000 shares of nonconvertible cumulative preferred stock. What is the number of shares that Deck should use to calculate year 2 earnings per share?

a. 140,000
b. 160,000
c. 150,000
d. 170,000

1-1-Year 2 Outstanding all Year $120,000
7-1-Year 2 40,000 issued x 6/12 20,000
Weighted average 140,000

The answer is a. 140,000 but my question is why we do not multiply the outstanding amount of 120,000 with 6/12 since 120,000 was the amount of the whole other half of the year. We only multiplied 6/12 with the 40,000.

[Anonymous]

I was confused by this too at first. 120,000 were o/s the whole year, since they were there in the beginning and aren't weighted, the additional shares acquired in July have to have weighted average applied to them to truly get the total # of shares o/s. I hope this helps.

[Recked]

If you want to do that method, you would multiply 120,000 by 12/12, indicating the shares were O/S for 12 months out of the year.
6/12 or half would reduce that 120k to 60k. Your weighted average would only be 80k for the year when 120k were O/S for the full year.

[Anonymous]

120,000 x 6 (Jan-Jun) = 720,000
160,000 x 6 (Jul-Dec) = 960,000
——————————————————
>>>>>>>>>>>>>>>> =1,680,000 / 12 = 140,000

[Anonymous]

Guys, if a question shows a no-par for Common Stock, how do we compute for the Paid-In Capital to begin with EPS and other stockholders’ equity MCQs and SIMs?

[Anonymous]

^^^ I don't understand the question.

[Anonymous]

Never mind. I don’t know what I don’t know. Dang! I hope I don’t get any EPS SIM again.

[Author]

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