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On January 1, 2018, Warren Corporation had 980,000 shares of common stock outstanding. On March...

Question:

On January 1, 2018, Warren Corporation had 980,000 shares of common stock outstanding. On March 1, the corporation issued 170,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 540,000 of its own outstanding shares and retired them. Compute the weighted average number of shares to be used in computing earnings per share for 2018.

Earnings Per Share:

Earnings-per-share is the financial ratio used to calculate how much earnings are generated for each common shareholder during the year. The financial statements must include two types of earnings per share: basic earnings-per-share and diluted earnings-per-share.

Answer and Explanation:


Computation of weighted average number of shares for 2018:


Jan 1: Beginning number of outstanding shares = 980,000 shares (outstanding for the whole year)

Mar 1: New shares issued to raise additional capital = 170,000 shares (outstanding for 10 months)

July 1: Declared as stock-split of 2 for 1: (980,000 + 170,000) * 2 = 2,300,000 shares (outstanding for 6 months)

Oct 1: Shares repurchased and retired = 540,000 shares (not outstanding for 3 months)

Weighted-average outstanding shares = ((980,000 * 2 * 12/12) + (170,000 * 2 * 10/12) - (540,000 * 3/12))

= (1,960,000 + 283,333.33 - 135,000) = 2,108,333.33 outstanding shares.


Learn more about this topic:

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How to Calculate Earnings Per Share: Definition & Formula

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 14
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