I\'m pretty certain I know how to figure out the Weighted Average on outstanding
ID: 2580334 • Letter: I
Question
I'm pretty certain I know how to figure out the Weighted Average on outstanding shares. However, When I went online to check the answer to my problem that was posted on Chegg, there is much conflicted posted answers. I'd like to review with someone if I did it right? The question is this: home / study / business / accounting / accounting questions and answers / Assignment Option #1: Earnings Per Share Respond To The Following. Submit Journal Entries In ... Question: Assignment Option #1: Earnings per Share Respond to the following. Submit journal entries in a ta... Assignment Option #1: Earnings per Share Respond to the following. Submit journal entries in a table in MS Word and written segments in the same Word document. Do not submit two separate documents, as only one document can be accepted. For written answers, please make sure your responses are well written, formatted per the CSU-Global Guide to Writing and APA Requirements and have proper citations, if applicable. As one of the auditors at Banquo & Associates, you have been assigned to check Duncan Corporations computation of earnings per share for the current year. The controller, Mac Beth, has supplied you with the following computations. Net income $3,374,960 Common shares issued and outstanding: Beginning of year 1,285,000 End of year 1,200,000 Average 1,242,500 Earnings per share: $3,374,960 = $2.72 per share 1,242,500 You have developed the following additional information. There are no other equity securities in addition to the common shares. There are no options or warrants outstanding to purchase common shares. There are no convertible debt securities. Activities in common shares during the year were as follows. Outstanding, Jan. 1 1,285,000 Treasury shares acquired, Oct. 1 250,000 Shares reissued, Dec. 1 165,000 Outstanding, Dec. 31 1,200,000 Questions: On the basis of the information above, do you agree with the controllers computation of earnings per share for the year? If you disagree, prepare a revised computation of earnings per share.
#2- Assume the same facts as those presented above, except that options had been issued to purchase 140,000 shares of common stock at $10 per share. These options were outstanding at the beginning of the year, and none had been exercised or canceled during the year. The average market price of the common shares during the year was $25, and the ending market price was $35. What earnings per share amounts will be reported.
After doing the weighted average I believe the answer to the first question should be the average is really $1,236,250.00 and the p/S is $2.73. I'm not sure how to approach the second question.
Explanation / Answer
Solution to Question 1 Months Number of Shares Period of holding Weighted Number of Shares Jan to Sep 1285000 9 11565000 Oct to Nov 1035000 2 2070000 Dec 1200000 1 1200000 Sum of Weighted number of shares 14835000 Total Periods 12 Weighted Average (Sum of Weighted number / Total Periods) 1236250 Earnings Per Share = Total Earnings/Weighted Average = $3374960/1,236,250 = $2.73 Solution to Question 2 Calculation of Diluted Shares : Amount that could have been paid by Option Holders = 140,000 * $10 per share = $1,400,000 Shares that could have been bought at market price using the amount = $ 1,400,000 / $35 per share = 40,000 shares Incremental Shares = 140,000 - 40,000 = 100,000 shares Diluted Shares = Shares already outstanding + Incremental Shares = 1,236,250 + 100,000 = 1,336,250 shares Diluted Earnings Per Share = Total Earnings / Diluted Shares = $3374960/ 1,336,250 = $2.53