Choice "C" is correct. 140,000 shares of common stock is the weighted average for earnings per share. The calculation is as follows:
| |
|---|
| 1-1-Year 2: Outstanding all year | $ 120,000 |
| 7-1-Year 2: 40,000 issued x 6/12 | 20,000 |
| Weighted average | $ 140,000 |
Choice "d" is incorrect. The preferred stock is not considered because it is nonconvertible.
Choice "b" is incorrect. The 40,000 shares issued on July 1, Year 2, must be time-weighted for the 6 months of the year (6/12) that they were outstanding.
Choice "a" is incorrect. The 40,000 shares issued on July 1, Year 2, must be time-weighted for the 6 months of the year that they were outstanding. Also, the preferred stock is not considered because it is nonconvertible.
