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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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For purposes of computing the weighted average number of shares outstanding during the year, a midyear event that must be treated as occurring at the beginning of the year is the:

  1. a. issuance of stock warrants
  2. b. purchase of treasury stock
  3. c. sale of additional common stock
  4. d. declaration and issuance of a stock dividend

To determine

Identify the option that is used while computing weighted average number of shares outstanding during the year, a midyear event that must be treated as occurring during the beginning of the year.

Explanation

Earnings per share (EPS):

The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS).

Justification for the correct answer:

Option a, b and c:

Issuance of stock warrant, purchase of treasury stock, sale of additional common stock events are irrelevant for computing the weighted average number of shares outstanding during the year. Hence, Option a, b and c are incorrect answers.

Justification for the correct answer:

Option d:

Stock dividends and stock split affects the company’s number of shares as they are non-cash events...

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