Newt Inc. uses a calendar year for financial reporting. The company is authorize
ID: 2546644 • Letter: N
Question
Newt Inc. uses a calendar year for financial reporting. The company is authorized to issue 9,000,000 shares of $10 par common stock. At no time has Newton issued any potentially dilutive securities. Listed below is a summary of Newton's common stock activities.
1. Number of common shares issued and outstanding at December 31, 2012 - 2,000,000
2. Shares issued as a result of a 10% stock dividend on September 30, 2013 - 200,000
3. Shares issued for cash on March 31, 2014 - 2,000,000
Number of common shares issued and outstanding at December 31, 2014 - 4,200,000
4. A 2-for-1 stock split of Newt's common stock took place on March 31, 2015
Instructions:
(a) Compute the weighted average number of common shares used in computing earnings per common share for 2013 on the 2014 comparative income statement.
(b) Compute the weighted average number of common shares used in compting earnings per common share for 2014 on the 2014 comparative income statement.
(c) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2014 on the 2015 comparative income statement.
(d) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2015 on the 2015 comparative income statement
Explanation / Answer
a)In case stock dividend is issued ,it is assumed to be at beginning of year
Weighted average number of shares or 2013 on the 2014 comparative income statement. : 2,000,000+200,000 stock dividend = 2,200,000 shares
b)weighted average number of common shares used in compting earnings per common share for 2014 on the 2014 comparative income statement. : 2,200,000 Beginning +[2,000,000*9/12]issued on march 31 2014
= 2,200,000 + 1,500,000
= 3,700,000shares
c)weighted-average number of common shares to be used in computing earnings per common share for 2014 on the 2015 comparative income statement : 3,700,000 *2/1 = 7,400,000 shares
**Assuming stock split occurs at beginning for 2014 for comparative purpose
d)weighted-average number of common shares to be used in computing earnings per common share for 2015 on the 2015 comparative income statement : 4,200,000 *2 /1
= 8,400,000 shares