Final answer:
For the calculation of basic earnings per share for J Company, one should use 22,500 shares which reflects the weighted average considering the stock split and additional shares issued during the year.
Step-by-step explanation:
The question asks for the calculation of the number of shares to be used in determining the basic earnings per share (EPS) for J Company for the year 2018. We start with an initial 10,000 shares outstanding as of January 1, 2018. On April 1, 2018, a 2 for 1 stock split occurs, doubling the number of shares to 20,000. Later, an additional 5,000 shares are issued on July 1, 2018.
However, in calculating the weighted average number of shares for EPS, we must take into account the timing of these events. The stock split is effective for the entire year as it occurred at the beginning of the second quarter. The additional shares issued are only applicable for the second half of the year. This results in:
20,000 shares x 6/12 months (for the stock split effective for the entire year) = 10,000 shares
5,000 additional shares x 6/12 months (since these were outstanding for the second half of the year) = 2,500 shares
Therefore, the weighted average number of shares for 2018 would be the sum of shares before the issuance and the weighted additional shares:
20,000 (initial shares post-split) + 2,500 (weighted additional shares) = 22,500 shares.
Thus, for the calculation of 2018 basic EPS for J Company, the correct number of shares to use is option b. 22,500.