The following data relate to Chaney Company for the current year; year end being

Question

The following data relate to Chaney Company for the current year; year end being December 31.

40,000 shares of common stock outstanding at the beginning of the year

July 1 issued 10 ,000 shares of common stock

October 1 declared 2-for-1 stock split

November 1: issued 20,000 shares of common stock

$4,000 in preferred dividends paid during the past year

$80,000 net income

Average market price on common stock during the past year, $18

Year-end market price on common stock, $20 17.

Based on the information presented above, determine the weighted average shares outstanding during the year:

a. 70,000 shares

b. 45,000 shares

c. 93,333 shares

d. 120,000 shares

e. Cannot be determined from the information given.

Explanation / Answer

Calculation of weighter average number of shares for the year ended 31st December is as under: Date No. of shares Shares outstanding Restated No. of months outstanding Weighted Average No. of shares Weighted Average No. of shares 1st Jan. Beginning of the year                  40,000 40,000 2 6/12 40,000*2*6/12          40,000 1st July Issued shares                  10,000 50,000 2 3/12 10,000*6/12          25,000 1st Oct. Stock split 2 for 1 stock                  50,000 100,000 1/12 50,000*3/12             8,333 1st Nov. Issued shares                  20,000 120,000 2/12 20,000*2/12          20,000 Total weighted average number of shares:          93,333 When the shares are split then the outstanding shares has to be restated for calculation of weighted average number of shares. The stock split is of 2 for 1 share therefore for restated outstanding shares 2 is multiplied with the outstanding shares before the split of shares. The weighted average number of shares is 93,333 shares. The correct answer is point is C.

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