Question

The following information pertains to Obama Company's outstanding stock for the year just ended:

Common stock, $5 par value:
Shares outstanding, 1/1 20,000
2-for-1 stock split, 4/1 20,000
Shares issued, 7/1 10,000
Preferred stock, $10 par value, 5% cumulative:
Shares outstanding, 1/1 4,000
Required:
A) How many shares should Obama use to calculate basic earnings per share?

Answer 1

45,000 shares

Step-by-step explanation:

The computation of the number of shares computed for the basic earning per share is shown below:

= shares outstanding as on Jan 1 + 2 for 1 stock split as on Jan 4 + shares issued as on Jan 7

= 20,000 shares + 20,000 shares + {10,000 shares × 6 months ÷ 12 months }

= 20,000 shares + 20,000 shares + 5,000 shares

= 45,000 shares

The 6 months are calculated from Jan 1 to July 1