Question

On January 1, Year 2, the Arlington Company had 100,000 shares of common stock issued and outstanding. On July 1, Year 2, the company sold 20,000 additional shares for cash. On August 1, a 25% stock dividend was distributed. What is the weighted-average number of common shares outstanding during Year 2

Answer 1

Answer:

The correct answer is 137,500 Shares.

Explanation:

According to the scenario, the computation of the given data are as follows:

Time period  Jan.1 - Jul.1 = 6 months

So, first we calculate the weighted average before dividend.

Weighted average before dividend shares outstanding = (100,000 × 6 ÷ 12) + (120,000 × 6 ÷ 12)

= 50,000 + 60,000 = 110,000

Now we can calculate the weighted-average number of common shares outstanding during Year 2 by using following formula:

Weighted-average number of common shares outstanding = Weighted average before dividend shares outstanding + Dividend on outstanding Shares

By putting the value we get,

= 110,000 + 25% × 110,000

= 110,000 + 27,500

= 137,500 Shares