The following data relate to Chaney Company for the current year; year end being
ID: 2472019 • Letter: T
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.