Question

(Weighted-Average Number of Shares) Newton 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, 2015 2,000,000

2. Shares issued as a result of a 10% stock dividend on September 30, 2016 200,000

3. Shares issued for cash on March 31, 2017 2,000,000Number of common shares issued and outstanding at December 31, 2017 4,200,000

4. A 2-for-1 stock split of Newton’s common stock took place on March 31, 2018

Instructions

(a) Compute the weighted-average number of common shares used in computing earnings per common share for 2016 on the 2017 comparative income statement.

(b) Compute the weighted-average number of common shares used in computing earnings per common share for 2017 on the 2017 comparative income statement.

(c) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2017 on the 2018 comparative income statement.

(d) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2018 on the 2018 comparative income statement

Short answer

a) 2,200,000 shares

b) 3,700,000 shares

c) 7,400,000 shares

d) 8,400,000 shares

Step-by-step solution

(a) Calculation of weighted-average number of common shares                 

Jan 1, 06- Sep 30, 06 Number of shares adjusted (2000.000 x 9/12 )	1500,000
Stock dividend	10%
Jan 1,06- Sep 30,06 Number of shares adjusted after stock dividend (1,500,000 x 110%)	1,650,000
Oct 1, 06- Dec 31,06 2,200,000*3/12	550,000
	2,200,000

(b) Calculation of weighted-average number of common shares

Jan 01,07- Mar 31,07 (2200,000 x 3/12 )	550,000
Apr 1,07- Dec31,07 (4200,000 x 9/12)	3,150.000
	3,700,000

(c) Calculation of weighted-average number of common shares

Previously Computed	3,700,000
Stock split	X 2
Weighted average number of shares	7,400,000

(d) Calculation of weighted-average number of common shares

Jan 1, 08- Mar 31, 08 (4,200,000 x 3/12)	$1050,000
Stock split	X 2
Jan 1,08- Mar 31, 08 Adjusted shares	2,100,000
Apr 1,08- Dec 31, 08 (8,400,000 x 9/12)	6,300,000
	8,400,000