Final answer:
To find the number of shares for computing earnings per share for Barone Corporation, we calculate a weighted average considering the issuance of shares, treasury shares purchased, and the 100% stock dividend. The correct number of shares for 2011's EPS calculation is 4,137,500, after taking into account the retroactive effect of the stock dividend to all periods of the year.
Step-by-step explanation:
Calculation of Weighted Average Shares Outstanding
To calculate the number of shares to be used in computing earnings per common share for Barone Corporation in 2011, we use a weighted average of shares throughout the year considering the stock transactions that occurred:
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- January 1: 1,250,000 shares
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- April 1: 200,000 shares issued, new total = 1,450,000 shares (for 9 months)
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- July 1: 75,000 treasury shares purchased, new total = 1,375,000 shares (for 6 months)
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- October 1: 100% stock dividend, shares double to new total = 2,750,000 shares (for 3 months)
To get the weighted average, multiply the number of shares by the fraction of the year they were outstanding:
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- 1,250,000 shares x 3/12 = 312,500
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- 1,450,000 shares x 6/12 = 725,000
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- 1,375,000 shares x 3/12 = 343,750
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- 2,750,000 shares x 3/12 = 687,500
Adding these amounts gives us the weighted average shares of 2,068,750.
However, the 100% stock dividend would double the previous shares and should be retroactively applied to all previous periods as if it had occurred at the beginning of the year. Therefore, the weighted average shares before the stock dividend is applied should be doubled:
2,068,750 shares x 2 = 4,137,500
Consequently, the correct answer for the number of shares to be used in computing earnings per common share for 2011 is 4,137,500.