Question

Tomba Corporation had 300,000 shares of common stock outstanding on January 1, 2017. On May 1, Tomba issued 30,000 shares. (a) Compute the weighted-average number of shares outstanding if the 30,000 shares were issued for cash. (b) Compute the weighted-average number of shares outstanding if the 30,000 shares were issued in a stock dividend.

Short answer

a. The weighted-average number of shares outstanding is $320,000.

b. The 30,000 shares issued in the stock dividend are assumed outstanding from the beginning of the year. Therefore, the weighted-average number of shares outstanding is 330,000.

Step-by-step solution

Computation of the weighted-average number of shares outstanding if the 30,000 shares were issued for cash 

(a).

$\begin{array}{c}\mathbf{weighted}\mathbf{-}\mathbf{average}\mathbf{}\mathbf{number}\mathbf{}\mathbf{of}\mathbf{}\mathbf{shares}\mathbf{}\mathbf{outstanding}\mathbf{=}(\mathbf{ExistingShares}\mathbf{}\mathbf{Outstanding}\mathbf{\times }\mathbf{Period}\mathbf{}\mathbf{covered})\mathbf{+}(\mathbf{Existing}\mathbf{}\mathbf{and}\mathbf{}\mathbf{Current}\mathbf{}\mathbf{outstanding}\mathbf{}\mathbf{share}\mathbf{\times }\mathbf{Period}\mathbf{}\mathbf{covered})\\ \mathbf{=}(\mathbf{300000}\mathbf{\times }\frac{4}{12})\mathbf{+}(\mathbf{330000}\mathbf{\times }\frac{8}{12})\\ =\$100,000+\$220,000\\ \text{=\$320,000}\end{array}$

Computation of the weighted-average number of shares outstanding if the 30,000 shares were issued in a stock dividend

$\begin{array}{c}\mathrm{weighted}-\mathrm{average}\mathrm{number}\mathrm{of}\mathrm{shares}\mathrm{outstanding}=\mathrm{Existing}\mathrm{outstanding}\mathrm{shares}+\mathrm{shares}\mathrm{issued}\mathrm{in}\mathrm{stock}\mathrm{dividend}\\ =300,000+30,000\\ =330,000\end{array}$