Question

Deck Co. had 120,000 shares of common stock outstanding at January 1, Year 2. On July 1, Year 2, it issued 40,000 additional shares of common stock. Outstanding all year were 10,000 shares of nonconvertible cumulative preferred stock. What is the number of shares that Deck should use to calculate Year 2 earnings per share? a. 140,000 b. 150,000 c. 170,000 d. 160,000

Answer 1

Option (a) 140,000

Step-by-step explanation:

Data provided in the question:

Beginning balance of the outstanding common stocks = 120,000 shares

Additional shares issued = 40,000

Outstanding nonconvertible cumulative preferred stock all year = 10,000 shares

Now,

Using the weighted average,

for year 2,

Shares issued =
`(6)/(12)` × 40,000 [July to December = 6 months = 0.5 year]

= 20,000 shares

Hence,

The number of shares that Deck should use to calculate Year 2 earnings per share

= Beginning balance + Shares issued

= 120,000 shares + 20,000 shares

= 140,000

Option (a) 140,000