Assume XYZ uses a calendar year for financial reporting. The company is authoriz

Question

Assume XYZ uses a calendar year for financial reporting. The company is authorized to issue 32,500,000 shares of $1 par common stock. Listed below is a summary of XYZ’s common stock activities.

2,600,000

780,000

1,625,000

5,005,000

1-Number of common shares issued and outstanding at December 31, 2014

2-Shares issued as a result of a 30% stock dividend on Sept. 1, 2015

3-Shares issued for cash on June 30, 2016

Number of common shares issued and outstanding at December 31, 2016

4-A 2-for-1 stock split of XYZ’s common stock took place on Oct. 1, 2017

Instructions:

A)Compute the weighted average number of common shares to be used in computing earnings per common share for 2015 on the 2016 comparative income statement.

B) Compute the weighted average number of common shares to be used in computing earnings per common share for 2016 on the 2016 comparative income statement.

C) Compute the weighted average number of common shares to be used in computing earnings per common share for 2016 on the 2017 comparative income statement.         

D)Compute the weighted average number of common shares to be used in computing earnings per common share for 2017 on the 2017 comparative income statement.         

2,600,000

780,000

1,625,000

5,005,000

Explanation / Answer

Solution A:

Weighted average number of common shares to be used in computing earnings per common share for 2015 on the 2016 comparative income statement =

Outstanding shares at beginning of 2015 restated with stock dividend regardless of where in the year the stock dividendo occurs

= 2600000*130% = 3380000 shares

Solution B:

Weighted average number of common shares to be used in computing earnings per common share for 2016 on the 2016 comparative income statement:

Outstanding shares at beginning of 2016 + Weighted average nos of shares issued during the year

= 3380000 + 1625000*6/12 = 4192500 shares

Solution C:

Weighted average number of common shares to be used in computing earnings per common share for 2016 on the 2017 comparative income statement.

= 2016 weighted average nos of share outstanding * retrospective adjustment of stock split

= 4192500 * 2 = 8385000 shares

Solution D:

Weighted average number of common shares to be used in computing earnings per common share for 2017 on the 2017 comparative income statement:

Nos of outstanding shares at beginning of 2017 * retrospective adjustment of stock split

= 5005000*2 = 10010000 shares

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