Question

Exercise 16-15

Nash Inc. uses a calendar year for financial reporting. The company is authorized to issue 8,880,000 shares of $12 par common stock. At no time has Nash issued any potentially dilutive securities. Listed below is a summary of Nash’s common stock activities.

1.		Number of common shares issued and outstanding at December 31, 2018		2,090,000
2.		Shares issued as a result of a 12% stock dividend on September 30, 2019		250,800
3.		Shares issued for cash on March 31, 2020		2,170,000
		Number of common shares issued and outstanding at December 31, 2020		4,510,800
4.		A 2-for-1 stock split of Nash’s common stock took place on March 31, 2021

a.) Compute the weighted-average number of common shares used in computing earnings per common share for 2019 on the 2020 comparative income statement.

b.) Compute the weighted-average number of common shares used in computing earnings per common share for 2020 on the 2020 comparative income statement.

c.) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2020 on the 2021 comparative income statement.

d.) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2021 on the 2021 comparative income statement.

Answer 1

Ans:

a.)

Computation of weighted average number of common stock to be used for computing earning per share for 2019 on 2020 comparative income statement.

Common Stock as on 31/12/2018: 2,090,000

Share issued as a result of stock dividend on 30th september 2019: 250,800

Total Stock as on 31/12/2019: 2,340,800

For 2020 comparative income statement 2,340,800 shares for the year 2019 will be used for computing eps.

b.)

Computation of weighted average number of common stock to be used for computing earning per share for 2020 on 2020 comparative income statement.

Common Stock as on 31/12/2019: 2,340,800

Stock Issued on 31/03/2020: 2,170,000

Proportionate stock for the year: 2,170,000/12*3= 542,500

For 2020 comparative income statement 2,883,300 shares for the year 2020 will be used for computing eps.

c.)

Computation of weighted average number of common stock to be used for computing earning per share for 2020 on 2021 comparative income statement.

Common Stock as on 31/12/2019: 2,340,800

Stock Issued on 31/03/2019: 2,170,000

For 2021 comparative income statement 4,510,800 shares for the year 2020 will be used for computing eps.

d.)

Computation of weighted average number of common stock to be used for computing earning per share for 2020 on 2020 comparative income statement.

Common Stock as on 31/12/2020: 4,510,800

Stock Issued on 31/03/2021 through stock split: 3,007,200 (4,510,800*2/3)

Proportionate stock for the year: 3,007,200/12*3= 751,800

For 2021 comparative income statement 5,262,600 shares will be used for computing eps.