Question

On December 31, 2020, Beta Company had 260,000 shares of common stock issued and outstanding. Beta issued a 7% stock dividend on June 30, 2021. On September 30, 2021, 30,000 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 2021

Answer 1

The appropriate number of shares to be used in the basic earnings per share computation for 2021 is 248,200 shares.

Step-by-step explanation:

The appropriate number of shares to be used in the basic earnings per share computation for 2021 can be calculated as follows:

1. 
   
2. On December 31, 2020, Beta Company had 260,000 shares of common stock issued and outstanding.
3. 
   
4. On June 30, 2021, Beta issued a 7% stock dividend. This means that 7% of the outstanding shares were issued as additional shares. So, 260,000 x 7% = 18,200 additional shares were issued.
5. 
   
6. On September 30, 2021, 30,000 shares of common stock were reacquired as treasury stock. This means that these shares are no longer considered outstanding.

To calculate the appropriate number of shares for the basic earnings per share computation, subtract the reacquired shares from the total shares after the stock dividend. So, 260,000 + 18,200 - 30,000 = 248,200 shares.

Therefore, 248,200 shares should be used in the basic earnings per share computation for 2021.

Answer 2

The appropriate number of shares to be used in the basic earnings per share computation for 2021 for Beta Company is 261,600, which accounts for issued shares, a mid-year stock dividend, and reacquired treasury stock.

Step-by-step explanation:

To calculate the weighted average number of common shares outstanding for the basic earnings per share (EPS) computation, one must adjust for changes in the number of shares over the reporting period. Beta Company had 260,000 shares outstanding at the beginning of 2021. A 7% stock dividend on June 30, 2021, would increase the number of shares by 18,200 (260,000 x 0.07), resulting in 278,200 shares. Since the stock dividend occurred halfway through the year, the additional shares are weighted for six months. On September 30, 2021, when 30,000 shares were reacquired, the company had 248,200 shares outstanding (278,200 - 30,000), and these are weighted for three months. The computation is as follows:

• 260,000 shares for 6 months.
• 278,200 shares for 3 months.
• 248,200 shares for 3 months.

Earnings per share calculation:

1. (260,000 shares x 6/12) + (278,200 shares x 3/12) + (248,200 shares x 3/12)
2. 130,000 + 69,550 + 62,050
3. Total weighted shares = 261,600

Therefore, Beta Company should use a weighted average of 261,600 shares for its basic earnings per share computation for 2021.