Maxwell Corp. had the following information related to common and preferred shares during the year. Common shares outstanding, 1/1 700,000 Common shares repurchased, 3/31 20,000 Conversion of preferred shares, 6/30 40,000 Common shares repurchased, 12/1 36,000 Maxwell reported net income of $2,000,000 at December 31. What amount of shares should Maxwell use as the denominator in the computation of basic earnings per share? 682,000 702,000 740,000 700,000
Answer : Maxwell use as the denominator in the computation of basic earnings per share = 702,000 shares
Working notes for the above answer is as under
| Common shares outstanding, | 1-Jan | 700000 | (1/1) Beginning bal: 700,000 shares out x (3/12) of the yr = 175,000 | 175000 |
| Common shares repurchased | 31-Mar | 20000 | (3/31) 20K purchased: 680,000 share out x (3/12) of the yr = 170,000 | 170000 |
| Conversion of preferred shares | 30-Jun | 40000 | (6/30) 40K P/S converted: 720,000 shares out x (5/12) of the yr = 300,000 | 300000 |
| Common shares repurchased | 1-Dec | 36000 | (21/1) 36K purchased: 684,000 share out x (1/12) of the yr = 57,000 | 57000 |
| 702000 |
So the answer is 702,000 shares as
