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swisha2k
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Joined: 29 Apr 2009
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Posted: 24 Jun 2009 at 23:45 \| IP Logged

On December 31, 2006, Superior, Inc. had 600,000 shares of common stock issued and outstanding. Superior issued a 10 percent stock dividend on July 1, 2007. On October 1, 2006, Superior reacquired 48,000 shares of its common stock and recorded the purchase using the cost method of accounting for treasury stock. What number of shares should be used in computing basic earnings per share for the year ended December 31, 2007?

A. 612,000 B. 618,000 C. 648,000 D. 660,000

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Answer is C; I picked D... help me break this down...

kars82
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Joined: 03 Mar 2009
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Posted: 24 Jun 2009 at 23:56 \| IP Logged

The shares o/s for 12 months is 600000
Stock dividend of 10% - 60000. Stock dividend is treated retrospectively. So add 60000.
Treasury stock bought back - 48000 on 1st october (assuming its 2007).So we have only 3 months o/s. So 48000*3/12=12000.
Therefore, 600000+60000-12000= 648000.
Hope it is clear.

winsouza
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Joined: 20 Mar 2009
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Posted: 25 Jun 2009 at 00:21 \| IP Logged

Swisha2k, i m assuming that Superior reacquired its 48,000 stock on 10/01/07.

As there was a 10% stock split on 07/01, the stocks outstanding gets adjusted retroactively but later on 10/01 the stocks were reacquired so for 9 months i had 660000 stocks outstanding. The new number includes the 10% stock divident hence for 9 months i would have 660000 stock outstanding X 9 months = 5940000

10/01 to 12/31 is 3 months hence Superior had 612000 stocks outstanding for 3 months = 1836000 (660000-48000 = 612000)

Hence the aggregate stocks outstanding would be 5940000 + 1836000 / 12 = 7776000/12 = 648000. Therefore I would pick alternative C, hope that was helpful.

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