Question

. On January 1, 2018, Charlotte Co. had the following amounts for its $1 par value...

. On January 1, 2018, Charlotte Co. had the following amounts for its $1 par value common stock: 500,000 shares authorized. 150,000 shares issued. 50,000 treasury shares. On July 1, 2018, Charlotte initiated a 2-for-1 stock split. The company repurchased 24,000 common shares on November 1. The company did not announce a dividend for common shareholders during the year. In addition, during 2018 the company did not declare any dividends on its 12,000 outstanding shares of 5%, $100 par value, noncumulative, convertible preferred stock, which were outstanding all year. Preferred shareholders have the option of converting each share of preferred stock into one share of common stock. On December 1, 2018, the preferred shareholders converted all 12,000 convertible preferred shares to shares of common stock. For the fiscal year ended December 31, 2018, Charlotte Co. reported Net Income of $400,000. The company’s tax rate is 21% (and there are no temporary or permanent book-tax differences). What is the company’s weighted-average number of common shares outstanding for the year?
1. 197,000.
2. 188,000.
3. 196,000.
4. 297,000.
5 . 147,000.

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Answer #1

Ans:

Calculation of Weighted average number of shares outstanding:

Jan 1:

Issued : 150,000

Treasury stock : 50,000

Stock Split : 2 for 1

Issued stock will be : 150,000 * 2 = 300,000

Treasury stock increase to : 50,000 * 2 = 100,000

Stock repurcahse on Nov 1 : 24,000

Preferred converted on Dec 1 : 12,000

Outstanding average common stock :

Period Stock Outstanding Working Avaerage outstanding stock
Jan 1 - Nov 1 300,000 - 100,000 200,000*10/12 166,666.67
Nov 1 - Dec 1 200,000 - 24,000 176,000 * 1/12 14,666.67
Dec 1 - Dec 31 176,000 + 12,000 188,000 * 1/12 15,666.67
Weighted Average Total 197,000

So correct answer is Option A.

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