Question

Buffalo Inc. uses a calendar year for financial reporting. The company is authorized to issue 9,000,000 shares of $12 par common stock. At no time has Buffalo issued any potentially dilutive securities. Listed below is a summary of Buffalo’s common stock activities.

1. Number of common shares issued and outstanding at December 31, 2015 2,160,000

2. Shares issued as a result of a 12% stock dividend on September 30, 2016 259,200

3. Shares issued for cash on March 31, 2017 2,190,000 Number of common shares issued and outstanding at December 31, 2017 4,609,200

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

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

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

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.

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.

Answer 1

Solution A:

Weighted average number of common shares to be used in computing earnings per common share for 2016 on the 2017 comparative income statement =

Outstanding shares at beginning of 2016 restated with stock dividend regardless of where in the year the stock dividends occurs

= 2160000*112% = 2419200 shares

Solution B:

Weighted average number of common shares to be used in computing earnings per common share for 2017 on the 2017 comparative income statement:

Outstanding shares at beginning of 2017 + Weighted average nos of shares issued during the year

= 2419200 + 2190000*9/12 = 4061700 shares

Solution C:

Weighted average number of common shares to be used in computing earnings per common share for 2017 on the 2018 comparative income statement.

= 2017 weighted average nos of share outstanding * retrospective adjustment of stock split

= 4061700 * 2 = 8123400 shares

Solution D:

Weighted average number of common shares to be used in computing earnings per common share for 2018 on the 2018 comparative income statement:

Nos of outstanding shares at beginning of 2018 * retrospective adjustment of stock split

= 4609200*2 = 9218400 share