1215

Bluff, Inc.’s stock transactions during the year were as follows:

• January 1                      90,000 common shares outstanding.

• April 1                           20% stock dividend is declared and issued.

• October 1                     10,000 shares are reacquired as treasury stock.

What is Bluff’s weighted average number of shares outstanding during the year?

A) 98,000.

B) 101,000.

C) 105,500.

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Initial shares: 90,000 × 1.20 =	108,000
– Reacquired treasury shares: 10,000 × 3/12 =	–2,500
	105,500

1215

Savannah Corp.’s financial accounts for the year ended December 31 included the following information:

• Net Income: $122,000
• Preferred Stock Dividends Paid: $35,000
• Common Stock Dividends Paid: $42,000
• Common Shares outstanding at January 1: 50,000
• 10% preferred $100 par value shares outstanding at January 1: 3,500

No stock transactions occurred during the year and all preferred stock dividends were paid. Basic earnings per share for Savannah are closest to:

A) $0.90.

B) $1.74.

C) $2.44.

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Savannah Corp.’s basic EPS ((net income – preferred dividends) / weighted average number of common shares outstanding) was (($122,000 ? $35,000) / $50,000 =) $1.74.

1215

Sampson Corp. had 500,000 shares of common stock outstanding at the beginning of the year.  The average market price was $20.

• On April 1, Sampson issued 100,000 shares of $1000 par value 10 percent preferred stock.
• On July 1, Sampson issued 200,000 warrants to purchase 10 shares of common stock  each at $22 per share.
• On October 1, Sampson repurchased 60,000 of common stock as treasury stock for $15 per share.

The weighted average common shares outstanding Sampson should use to compute basic earnings per share (EPS) was:

A) 515,000.

B) 485,000.

C) 600,000.

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Only the October 1 transaction affects the weighted average common shares outstanding because the April 1 transaction would not affect the number of shares outstanding and the July 1 transaction involves warrants which would not be included in the basic EPS calculation. The computation for basic EPS is [(500,000 × 12) ? (60,000 × 3)] / 12 = 485,000.