# Chape Co. had the following information related to common and preferred shares during the year:...

## Question:

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?

a. 702,000

b. 700,000

c. 740,000

d. 684,000

## 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.

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