Question

Balm Co. had 10,000 shares of common stock outstanding as of January 1. The following events occurred during the year:

4/1 Issued 3,000 shares of common stock.

7/1 Distributes 20% stock dividend

10/1 Purchases 4000 shares of stock for treasury

12/1 declares and distributes a 3 to 1 stock split.

What is the weighted average number of shares to be used for computing Earnings Per Share?

Answer 1

• The no. of weighted average shares outstanding can be calculated in following two ways. The final answer under both the method will be the same.
• Method 1:

	No. of shares increased (decreased)	Cumulative no. of shares outstanding	Period they remained outstanding	Weighted Average no. of shares
	[A]	[B = B + A]	[C]	[D = (B x C)/12
Beginning Balance	10,000.00	10,000.00	3 months [1 Jan to 31 Mar]	2,500.00
Issued on 1 April	3,000.00	13,000.00	3 months [1 Apr to 30 June]	3,250.00
Stock Dividend on 1 Jul	2,600.00	15,600.00	3 months [1 Jul to 30 Sept]	3,900.00
treasury Stock purchased on 1 Oct	(4,000.00)	11,600.00	2 months [1 Oct to 30 Nov]	1,933.33
Stock Split on 1 Dec	34,800.00 [11600 shares x 3/1]	34,800.00	1 month [1 Dec to 31 Dec]	2,900.00
Total no. of weighted average no. of shares to be used for computing EPS				14,483.33

• Method 2:

	No. of shares increased (decreased)	No. of months they remained outstanding	Weighted Average no. of shares
	[A]	[B = no. of months till 31 Dec]	[C = (A x B)/12]
Beginning Balance	10,000.00	12	10,000.00
Issued on 1 April	3,000.00	9	2,250.00
Stock Dividend on 1 Jul	2,600.00	6	1,300.00
treasury Stock purchased on 1 Oct	(4,000.00)	3	(1,000.00)
Stock Split on 1 Dec	23,200.00 [ (11600 shares x 3/1) – 11600 shares]	1	1,933.33
Total no. of weighted average no. of shares to be used for computing EPS			14,483.33

• Answer under both method = 14,483.33 shares