Question

One of your duties for your company is to calculate earnings per share. Your company has 400,000 common shares outstanding on 1/1/19. On April 1 they issue 97,000 share of common and 2,500 shares of preferred stock. On June 1 they acquired 37,500 from the open market to use as treasury stock. On November 1 they sold 32,000 shares of the treasury stock below their original cost. Calculate the weighted average common shares outstanding for purposes of the December 31, 2019 basic earnings per share calculation (ignore rounding).

Answer 1

456,208 stocks

Step-by-step explanation:

weighted average common shares outstanding:

• January 1, 400,000 common stocks = 400,000 x 12/12 (time) = 400,000 stocks
• April 1, 97,000 common stocks = 97,000 x 9/12 (time) = 72,750 stocks
• June 1, 37,500 treasury stocks purchased = -37,500 x 7/12 (time) = -21,875 stocks
• November 1, resold 32,000 treasury stocks = 32,000 x 2/12 (time) = 5,333.33 ≈ 5,333

total weighted average stocks outstanding = 400,000 + 72,750 - 21,875 + 5,333 = 456,208

the weighted average considers the amount of time the stocks have been outstanding during the year, that is why we multiply by (months outstanding / 12).