On January 1, 2010, Edward Corporation had 10,000 shares of $6 par value common stock and 10,000 shares of 8%, $100 par value convertible preferred stock outstanding. The preferred shares carried a 3 for 1 conversion privilege. On October 1, 2010, all of the preferred shares were converted to common. What number of shares must Edward use in computing basic earnings per share at December 31, 2010?

Question

Quizplus · Accepted Answer

The basic earnings per share calculation should include the weighted average number of shares. Edward Corporation had 10,000 common shares initially. The preferred shares were converted to 30,000 common shares (10,000 preferred shares * 3) on October 1, 2010. The weighted average calculation for the year would be: (10,000 shares * 9/12) + (40,000 shares * 3/12) = 17,500 shares.

On January 1, 2010, Edward Corporation Had 10,000 Shares of $6