The Heath Corporation reported net income for 2015 of $177,500. Heath began the year with 100,000 shares of $5 par value common shares outstanding and 2,500 shares of $100 par value 8% preferred shares outstanding. On October 1, Heath sold 10,000 shares of common stock for $6 per share. Heath paid dividends to the common shareholders in December.
-The weighted average number of common shares used to compute earnings per share for 2015 is

Question

Quizplus · Accepted Answer

The weighted average number of common shares is calculated by taking into account the number of shares outstanding and the period they were outstanding. Heath started with 100,000 shares and sold an additional 10,000 shares on October 1, meaning those additional shares were outstanding for 3 months (October, November, December). The calculation is as follows: 100,000 shares for the full year plus (10,000 shares * 3/12) = 102,500 shares.

The Heath Corporation Reported Net Income for 2015 of $177,500