Weight Loss Operations Company

weight loss operations company
What is the year 2003 weighted-average shares outstanding?

Answer that question given the following:

The annual income statements for Cortez, Inc. as reported when they were initially publised in 2003.

Net sales…….$370,000
Operating expenses….232,000
Income from continuing operations……137,500
Loss on discoontinued segment…. (52,500)
Income before extraordinary items…85,000
Extraodinary gain (loss)……——–
Net income…….$85,000

The company also experienced changes in the numbe of outstanding shares from the following events:

Treasury stock purchase on April 1………-4,000
Issuance of new shares on June 30………+12,000
10% stock dividend on October 1………….+14,800
Outstanding shares on December 31,2004….52,800

The only information that matters here is the second half

Treasury stock purchase on April 1………-4,000
Issuance of new shares on June 30………+12,000
10% stock dividend on October 1………….+14,800
Outstanding shares on December 31,2004….52,800

Start working backwards
52,800 shares outstanding between October 1 and December 31 (3 months)
52,800 – 14,800 = 38,000 shares between June 30 and October 1 (3 months)
38,000 – 12,000 = 26,000 shares between April 1 and June 30 (3 months)
26,000 + 4,000 = 30,000 shares between January 1 and April 1 (3 months)

The weighted average number of shares outstanding for the year
= 52,800(3/12) + 38,000(3/12) + 26,000(3/12) + 30,000(3/12)
= 13,200 + 9,500 + 6,500 + 7,500
= 36,700

The key here is that the weighted average is the number of shares outstanding for the fraction of the year they were outstanding.

There’s one thing that might be a typo. The last line of your question says “Outstanding shares on December 31,2004….52,800″. This means that I calculated the weighted average shares outstanding for the year 2004, not 2003. If you have share data for 2004, you cannot figure out the weighted average of shares outstanding for 2003. The only thing you can figure out is that there were 30,000 shares outstanding on December 31, 2003.

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