Answer to Question #197381 in Accounting for Milan

Question

At the beginning of the year, Stam Co. had 200,000 shares of common stock issued and

outstanding. On March 31, the company issued 40,000 additional shares. On July 1, it declared

and distributed a 50% stock dividend and on September 30 repurchased 10,000 shares as

treasury stock. What amount of shares should Stam use to calculate basic earnings per share?

A. 287,500

B. 342,500

C. 345,000

D. 360,000

Answer 1

Solution:

The correct answer is D.

The amount of shares that is normally used to calculate basic earning per share is the total outstanding shares at the end of the year.

This is derived as follows:

Shares outstanding at the beginning of the year          = 200,000 shares

Add additional shares issued on March 31^st                =  40,000 shares

Total shares outstanding                                               = 240,000 shares

Add 50% stock dividend distributed (50% x 240,000) = 120,000 shares

Total shares outstanding at the end of the year           = 360,000 shares

 

The treasury stock repurchased are not included in the shares outstanding.