The following information pertains to Obama Company's outstanding stock for the year just ended:

Common stock, $5 par value:

Shares outstanding, 1/1 20,000

2-for-1 stock split, 4/1 20,000

Shares issued, 7/1 10,000

Preferred stock, $10 par value, 5% cumulative:

Shares outstanding, 1/1 4,000

Required:

A) How many shares should Obama use to calculate basic earnings per share?

45,000 shares

Explanation:

The computation of the number of shares computed for the basic earning per share is shown below:

= shares outstanding as on Jan 1 + 2 for 1 stock split as on Jan 4 + shares issued as on Jan 7

= 20,000 shares + 20,000 shares + {10,000 shares * 6 months : 12 months }

= 20,000 shares + 20,000 shares + 5,000 shares

= 45,000 shares

The 6 months are calculated from Jan 1 to July 1