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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. 1Number of common shares issued and outstanding at December 31, 2018 2,000,000 2. 1Shares issued as a result of a 10% stock dividend on September 30, 2019 200,000 3. 1Shares issued for cash on March 31, 2020 2,000,000 1Number of common shares issued and outstanding at December 31, 2020 4,200,000 4. 1A 2-for-1 stock split of Newton's common stock took place on March 31, 2021 Instructions a. Compute the weighted-average number of common shares used in computing earnings per common share for 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 per common share for 2021 on the 2021 comparative income statement.

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Answer:

A. $2,200,000

B. $3,700,000

C. $7,400,000

D. $ 8,400,000

Explanation:

a. Computation for the weighted-average number of common shares used in computing earnings per common share for 2019

Jan 1, 2019-Sept. 30, 2019 2,000,000 /12 * 9 =1,500,000

Adjustment for stock dividend 10%

Jan 1, 2019-Sept. 30, 2019 as adjusted (1,500,000 *1. 10) 1,650,000

Add Oct. 1, 2019- Dec. 31, 2019

( 2,200,000 /12 x 3 ) 550,000

Total weighted average Outstanding shares $2,200,000

(1,650,000+550,000)

b. Computation for the weighted-average number of common shares used in computing earnings per common share for 2020

Jan.1, 2020 - Mar. 31,2020

(2,000,000 /12 x 3) 550,000

Add:Apr. 1, 2020 - Dec. 31, 2020

(4,200,000 /12 x 9 )=3,150,000

Total weighted average Outstanding shares $3,700,000

(3,150,000+550,000)

c. Computation for the weighted-average number of common shares to be used in computing earnings per common share for 2020

2020 weighted average number of shares previously computed 3,700,000

×Adjustment for stock split (2 for 1) 2

= Total weighted average Outstanding shares $7,400,000

d. Computation for the weighted-average number of common shares to be used in computing earnings per common share for 2021

Jan. 1, 2021 - Mar. 31, 2021

4,200,000/ 12 x 3 =(1,050,000)

Adjustment for stock split (2 for 1) 2

Jan. 1, 2021- Mar. 31, 2021 adjusted

(1,050,000 x 2) 2,100,000

Add (4,200,0000*2) 8,400,000 1 April,2021 - 31 December,2021

( 8,400,000 * 9 / 12) = 6,300,000 (After split up)

Total weighted average Outstanding shares $ 8,400,000

(6,300,000+2,100,000)

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