Question

Select Corporation was incorporated on January 2, 2020. The following information pertains to Select Corporation’s 2020 common stock transactions. Net income: $330,000. Convertible Preferred stock, 5%, cumulative, 5,000 shares, $10 par value per share. Preferred dividends declared in 2020: $0

Jan. 2 Number of shares authorized . . . . . . . . . . . . . . . . . . . . . 250,000

Jan. 2 Number of shares issued . . . . . . . . . . . . . . . . . . . . . . . . 85,000

Jul. 1 Number of shares reacquired but not canceled . . . . . . . 5,000

Sept. 1 Two‑for‑one stock split

Dec. 1 Reissued shares of treasury stock . . . . . . . . . . . . . . . . . 5,000

	A.	Weighted Avg Shares outstanding are 165,000 and Basic Earnings Per Share is $2.00/share
	B.	Weighted Avg Shares outstanding are 165,417 and Basic Earnings Per Share is $2.10/share
	C.	Weighted Avg Shares outstanding are 165,417 and Basic Earnings Per Share is $1.98/share
	D.	Weighted Avg Shares outstanding are 165,000 and Basic Earnings Per Share is $1.90/share

Answer 1

	Amount $
Net Income	330,000
Less: Cumulative preferred dividend	2,500	(5,000 x 10 x 5% )
Earnings for Basic EPS	327,500
Weighted average shares outstanding
Date	Number of shares	Split	Weight	Weighted Average
Jan.2 - Shares issued	85,000	2:1	12/12	170,000	( 85,000 x 2 x 12/12)
Jul.1 - Share reacquired	-5,000	2:1	6/12	-5,000	(5,000 x 2 x 6/12 )
Dec.1- Reissued treasury stock	5,000		1/12	417	( 5,000 x 1/12)
Weighted average shares outstanding				165,417
Basic earnings per share	$1.98	( 327,500 / 165,417)

Correct answer is option C. ( i.e. Weighted Avg Shares outstanding are 165,417 and Basic Earnings Per Share is $1.98/share ).