Chape Co. had the following information related to common and preferred shares during the year:
Common shares outstanding, 1/1700,000
Common shares repurchased, 3/31 20,000
Conversion of preferred shares, 6/30 40,000
Common shares repurchased, 12/1 36,000
Chape reported net income of $2,000,000 at December 31.
What amount of shares should Chape use as the denominator in the computation of basic earnings per share?
Earnings Per Share (EPS):
Earnings Per Share (EPS) is computed by dividing the net income available to the common stockholders by the total weighted average number of shares outstanding at the period-end.
Answer and Explanation:
The correct answer is option (a).
The number of shares should Chape use as the denominator in the computation of basic earnings per share is 702,000.
Compute the weighted average number of shares outstanding as follows: -
|Calculation for weighted average number of shares|
|Particulars||Number of shares (a)||Weight (b) Period (year)||Weighted number of shares (a x b)|
|Outstanding shares, 01 January||700,000||12/12||700,000|
|Repurchased, 31 March||-20,000||9/12||-15,000|
|Conversion of preferred shares, 30 June||40,000||6/12||20,000|
|Repurchased treasury stock, 01 December||-36,000||1/12||-3,000|
|Total Weighted Average number of shares||702,000|
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Learn more about this topic:
from Introduction to Business: Homework Help ResourceChapter 24 / Lesson 14