Assume that the following transactions affected owners' equity for De Soto Inc. during 2011.
Feb. 1- Sold 40,000 shares of common stock in the market.
Apr. 1- Purchased 3,000 shares of common stock to be held as treasury stock. Paid cash dividends of $0.50 per share.
May 1- Split common stock 2 for 1.
July 1- Sold 15,000 shares of common stock.
Oct. 1- Issued a 10% stock dividend.
Dec. 31- Paid a cash dividend of $0.70 per share. The total amount paid for dividends on December 31 was $407,330.
Compute the weighted-average number of shares to be used in computing basic EPS for 2011. Because no beginning share figures are available, you must work backward from December 31, 2011, to compute shares outstanding. Round each of your calculations to the nearest whole number of shares
To compute the weighted-average number of shares for De Soto Inc. for 2011, you will need to work backward from December 31, 2011, and consider the various stock transactions that occurred throughout the year.
Here is a step-by-step process to compute the weighted-average number of shares:
1. Start with the number of shares outstanding on December 31, 2011. This will be the final number that you want to compute.
2. Work backward from December 31 and consider each stock transaction in chronological order:
- Oct. 1: Issued a 10% stock dividend. To calculate the additional shares from the dividend, multiply the current number of shares by 10% (0.10) and add this to the current number of shares.
- July 1: Sold 15,000 shares of common stock. Subtract 15,000 shares from the current number of shares.
- May 1: Split common stock 2 for 1. To calculate the new number of shares after the split, multiply the current number of shares by 2.
- Apr. 1: Purchased 3,000 shares of common stock as treasury stock. Subtract 3,000 shares from the current number of shares.
- Feb. 1: Sold 40,000 shares of common stock. Subtract 40,000 shares from the current number of shares.
3. Once you have considered all the transactions, you will have the initial number of shares, which was the weighted-average number of shares for the year. Round this number to the nearest whole number of shares.
That's it! By following these steps and working backward, you can compute the weighted-average number of shares for De Soto Inc. for 2011.
To compute the weighted-average number of shares for basic EPS, we need to calculate the number of shares outstanding at the end of each period and then find their weighted average.
First, let's work backward from December 31, 2011, to calculate the number of shares outstanding at each point:
1. Starting with the given information on December 31, 2011:
- Cash dividends paid on December 31: $407,330 (total amount)
- Dividend per share: $0.70
To find the number of shares outstanding, we can divide the total amount paid for dividends by the dividend per share:
Number of shares outstanding on December 31, 2011 = $407,330 / $0.70 = 582,043 shares
2. Since no beginning share figures are available, we'll assume that all the shares issued throughout 2011 were outstanding until December 31, 2011.
3. July 1 - Sold 15,000 shares of common stock:
Number of shares outstanding after July 1 = 582,043 + 15,000 = 597,043 shares
4. May 1 - Split common stock 2 for 1:
Number of shares outstanding after May 1 = 597,043 x 2 = 1,194,086 shares
5. April 1 - Purchased 3,000 shares of common stock as treasury stock:
Number of shares outstanding after April 1 = 1,194,086 - 3,000 = 1,191,086 shares
6. February 1 - Sold 40,000 shares of common stock in the market:
Number of shares outstanding after February 1 = 1,191,086 + 40,000 = 1,231,086 shares
Now that we have the number of shares outstanding at each date, let's calculate the weighted-average number of shares:
Weighted-average number of shares = (Number of shares x Period Shares were Outstanding) / Total number of periods
Since we have only one period (the whole year), the weighted-average number of shares will simply be the number of shares outstanding on December 31, 2011:
Weighted-average number of shares = 582,043
So, the weighted-average number of shares to be used in computing basic EPS for 2011 is 582,043 shares.