Purchase Solution

# Weighted-Average of Outstanding Shares

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I don't understand the effect of the Share Dividend Column ... {please see attachment}

I don't understand the effect of the Share Dividend Column - how do they get 1.10? And how come in December they only have it 1, not 1.10?

Time Period Outstanding Shares Effect of Share Dividend Fraction of year Weighted Average
Jan-March 500,000 x 1.10 x 3/12 137,500
Apr-October 540,000 x 1.10 x 7/12 346,500
Nov 510,000 x 1.10 x 1/12 46,750
Dec 561,000 x 1 x 1/12 46.750
Weighted-average outstanding shares 577.500

Earnings per share under the assumption of the 10% stock dividend would be:

Basic earnings per share = 880,000 net income - 250,000 preferred dividends declared
577,500

= 1.09

This is where I got my information:

Lescon Inc.
Shareholders Equity
December 31,2002
Contributed Capital:
Preferred shares, \$5 cumulative, unlimited shares authorized,
50,000 shares issued & outstanding \$1,000,000
Common Shares, unlimited shares authorized,
540,000 shares issued and 510,000 shares outstanding* 7,200,000
Total contributed capital \$8,200,000
Retained Earnings 1,110,000
Total Shareholders equity \$9,310,000

*40,000 common shares issued on April 1,2002
30,000 common shares were repurchased and retired on November 1,2002

##### Solution Summary

The solution calculates the Weighted-Average of Outstanding Shares.

##### Solution Preview

The additional shares which are created by a stock dividend or a stock split are not weighted for the time period they were outstanding. Instead , the shares outstanding prior to the stock distribution are retroactively restated to reflect the increase in shares - that is, treated as ...

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