Question

On December 31, 2017, Beta Company had 300,000 shares of common stock issued and outstanding. Beta issued a 5% stock dividend on June 30, 2018. On September 30, 2018, 40,000 shares of common stock were reacquired as treasury stock. What is the appropriate number of shares to be used in the basic earnings per share computation for 2018?

Answer 1

Answer:

305,000 Shares

Explanation:

The approriate number of shares to be used in the basic earnings per share computation for 2018 is calculated thus:

• As at December 31, 2017 Issued and Outstanding Common Stock = 300,000 shares

• Dividend paid= 5% Common Stock

• Meaning As at June 30, 2018, Common Stock issued rose as follows:

         =(300,000×1.05)= 315,000

• However, Treasury Stock Reacquired September 30, 2018 = 40,000 shares of common stock
• Implication: From January - September 30, Common Stock increased from 300,000 to 315,000. However, From October 1- Decembe 21, Common Stock reduced by 40,000.
• To Calculate the Shares for EPS: We need to remove the last 3 months (October- December) for which the outstanding common  stock has reduced by 40,000 shares.
• = (300,000 × 1.05) - (40,000 ×3/12)
• = 315,000-10,000
• =305,000 (Appropriate number of shares for basic EPS for 2018)