This is the number of common shares outstanding at year-end. This is incorrect for two reasons. (1) the number of common shares used should be the weighted average number of common shares outstanding, not the number of common shares outstanding at year-end. (2) the weighted average number of common shares outstanding used in calculating basic EPS should be adjusted to reflect the 2-for-1 stock split that occurred after year end but before the financial statements were issued. The number of common shares used should be adjusted for the year just ended as well as for any prior year financial statements presented for comparison.
According to the FASB Accounting Standards Codification TM 260-10-55-12, "If the number of common shares outstanding increases as a result of a stock dividend or stock split (see Subtopic 505-20) or decreases as a result of a reverse stock split, the computations of basic and diluted EPS shall be adjusted retroactively for all periods presented to reflect that change in capital structure. If changes in common stock resulting from stock dividends, stock splits, or reverse stock splits occur after the close of the period but before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25), the per-share computations for those and any prior-period financial statements presented shall be based on the new number of shares. If per-share computations reflect such changes in the number of shares, that fact shall be disclosed." Therefore, the weighted average number of common shares outstanding used in calculating basic EPS should be adjusted to reflect the 2-for-1 stock split that occurred after year end but before the financial statements were issued. The weighted average number of common shares outstanding was calculated as 500,000. The number of common shares used in calculating basic EPS should be adjusted for the year just ended as well as for any prior year financial statements presented for comparison. Because of the 2-for-1 split that occurred before the financial statements were issued, Ray's weighted average number of common shares to be used for computing annual basic earnings per share is 500,000 × 2, or 1,000,000.
This is the number of common shares outstanding at year-end multiplied by 2. The number of common shares outstanding used for calculating basic EPS should be the weighted average number of common shares outstanding, not the number of common shares outstanding at year-end. Multiplying the number of common shares outstanding by 2 is correct, because the weighted average number of common shares outstanding used in calculating basic EPS should be adjusted to reflect the 2-for-1 stock split that occurred after year end but before the financial statements were issued. The number of common shares outstanding used should be adjusted for the year just ended as well as for any prior year financial statements presented for comparison.
This is the weighted average number of common shares outstanding at year-end. The weighted average number of common shares outstanding used in calculating basic EPS should be adjusted to reflect the 2-for-1 stock split that occurred after year end but before the financial statements were issued. The number of common shares used should be adjusted for the year just ended as well as for any prior year financial statements presented for comparison.
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