When a Company Calculates Its Earnings Per Common Share for Its

question 300

Short Answer

When a company calculates its earnings per common share for its financial statements, it uses the weighted-average number of common shares outstanding during the year. Suppose Enertec Corp. began its fiscal year (January 1 to December 31) with 5 million shares outstanding. On March 1, it sold a new public offering of 1 million shares. On June 1, employees and officers exercised stock options resulting in the issue of 500,000 common shares. On November 1, another 750,000 shares were issued when holders of convertible bonds chose to exercise the conversion privilege. What was the average number of common shares outstanding during the year? (Assume that each month has the same length.)

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Definitions:

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