Question

E16.5 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 2018 2,000,000

2. SHARES ISSUED AS A RESULT OF 10% STOCK DIVIDEND ON SEPTEMBER 30 2019. 200,000

3. SHARES ISSUED FOR CASH ON MARCH 31 2020 2,000,000

NUMBER OF COMMON SHARES ISSUED AND OUTSTANDING AT DECEMBER 31 2020 4,200,000

4. A 2-FOR-1 STOCK SPLIT OF NEWTON'S COMMON STOCK TOOK PLACE ON. MARCH 31 2021

A. COMPUTE THE WEIGHTED-AVERAGE OF COMMON SHARES USED IN COMPUTING EARNINGS PER COMMON SHAREFOR 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 OER COMMON SHARE FOR 2021 ON THE 2021 COMPARATIVE INCOME STATEMENT

Answer 1

Solution A:

Weighted average number of common shares to be used in computing earnings per common share for 2019 on the 2020 comparative income statement =

Outstanding shares at beginning of 2019 restated with stock dividend regardless of where in the year the stock dividends occurs

= 2000000*110% = 2200000 shares

Solution B:

Weighted average number of common shares to be used in computing earnings per common share for 2020 on the 2020 comparative income statement:

Outstanding shares at beginning of 2020 + Weighted average nos of shares issued during the year

= 2200000 + 2000000*9/12 = 3700000 shares

Solution C:

Weighted average number of common shares to be used in computing earnings per common share for 2020 on the 2021 comparative income statement.

= 2020 weighted average nos of share outstanding * retrospective adjustment of stock split

= 3700000 * 2 = 7400000 shares

Solution D:

Weighted average number of common shares to be used in computing earnings per common share for 2021 on the 2021 comparative income statement:

Nos of outstanding shares at beginning of 2021 * retrospective adjustment of stock split

= 4200000*2 = 8400000 shares