(Weighted-Average Number of Shares) Newton Inc. uses a calendar year for financial reporting. The company is authorized to issue 9,000,000 shares of $10 par common stock. At no time has Newton issued any potentially dilutive securities. Listed below is a summary of Newton’s common stock activities.
1. Number of common shares issued and outstanding at December 31, 2005 2,000,000
2. Shares issued as a result of a 10% stock dividend on September 30, 2006 200,000
3. Shares issued for cash on March 31, 2007 2,000,000
Number of common shares issued and outstanding at December 31, 2007 4,200,000
4. A 2-for-1 stock split of Newton’s common stock took place on March 31, 2008.
Hint: (LO 6)
Instructions
a.
Compute the weighted-average number of common shares used in computing earnings per common share for 2006 on the 2007 comparative income statement.
b.
Compute the weighted-average number of common shares used in computing earnings per common share for 2007 on the 2007 comparative income statement.
c.
Compute the weighted-average number of common shares to be used in computing earnings per common share for 2007 on the 2008 comparative income statement.
d.
Compute the weighted-average number of common shares to be used in computing earnings per common share for 2008 on the 2008 comparative income statement.
(a) 2,200,000 shares
Jan. 1, 2006–Sept. 30, 2006 (2,000,000 X 9/12) 1,500,000
Retroactive adjustment for stock dividend X 1.10
Jan. 1, 2006–Sept. 30, 2006, as adjusted 1,650,000
Oct. 1, 2006–Dec. 31, 2006 (2,200,000 X 3/12) 550,000
2,200,000
Another way to view this transaction is that the 2,000,000 shares at the beginning of the year must be restated for the stock dividend regardless of where in the year the stock dividend occurs.
(b) 3,700,000 shares
Jan. 1, 2007–Mar. 31, 2007 (2,200,000 X 3/12) 550,000
Apr. 1, 2007–Dec. 31, 2007 (4,200,000 X 9/12) 3,150,000
3,700,000
(c) 7,400,000 shares
2007 weighted average number of shares
previously computed 3,700,000
Retroactive adjustment for stock split X 2
7,400,000
(d) 8,400,000 shares
Jan. 1, 2008–Mar. 31, 2008 (4,200,000 X 3/12) 1,050,000
Retroactive adjustment for stock split X 2
Jan. 1, 2008–Mar. 31, 2008, as adjusted 2,100,000
Apr. 1, 2008–Dec. 31, 2008 (8,400,000 X 9/12) 6,300,000
8,400,000
Another way to view this transaction is that the 4,2000,000 shares at the beginning of the year must be restated for the stock split regardless of where in the year the stock split occurs.
