[Anonymous]

Chape Co. had the following information related to common and preferred shares during the year:

Common shares outstanding, 1/1 700,000
Common shares repurchased, 3/31 20,000
Conversion of preferred shares, 6/30 40,000
Common shares repurchased, 12/1 36,000

Chape reported net income of $2,000,000 at December 31. What amount of shares should Chape use as the denominator in the computation of basic earnings per share?

Answer is 702,000

1/1
700,000 x 12/12 = 700,000
3/31
20,000 x 9/12 = (15,000)
6/30
40,000 x 6/12 = 20,000
12/1
36,000 x 1/12 = (3,000)

702000

So how do you solve it using the other method? I keep getting 708,000

700,000 x 3/12 = 175000

680,000 x 3/12 = 170000

720,000 x 5/12 = 300000

756,000 x 1/12 = 63000

175,000 + 170,000 + 300,000 + 63,000 = 708,000

What am I doing wrong? Thanks.

[Anonymous]

In your calculation, you must weight the 1/1 shares as they are outstanding for the entire year.

It seems as if you are adjusting the number of shares based on what was sold and increasing or decreasing the total and weighting that number. Never seen it done that way.

[Anonymous]

I actually found out what I did wrong. I was supposed to subtract the repurchased shares not add. So instead of 756,000 x 1/12 its 684,000 x 1/12 = 57,000 which gets me the 702,000.

The becker homework shows 2 methods and then when they show the solutions to the homework they for some stupid reason like to alternate between the two so it's impossible for one to stick. The method I'm using(their method#2) makes more sense to me since it looks at the number of total shares during a certain period of time. The other method seems very backwards to me.

[Author]

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