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the Weight average column.

- If shares were issued for assets, weight the new shares by multiplying thy by a fraction. The numerator of the fraction is the number of moths in the period the shares were outstanding; the denominator is the number of months in the year. Add this equivalent amount in the weighted average column; arrive at a new balance.

- If shares were issued in a stock dividend or a stock split, retroactively adjust for these shares by taking an appropriate multiple of the existing balance in the Weighted Average column. Ignore the date of the stock dividend or split; the multiple is determined by the size of the stock dividend or split. Arrive at a new balance.

- If shares were acquired as treasury stock or retired by the corporation, weight the shares for the time they were not outstanding and deduct this equivalent amount from the existing balance. Arrive at a new balance.

THIRD: Take each of the other transactions that occurred during the year that changed the number of common shares outstanding and properly adjust the balance in the Weighted Average column as shown on item labeled SECOND above. Handle each transaction in order of date. Example:

Data: January 1, 2007 100,000 shares were outstanding

April 1, 2007 Issued 40, 000 shares for cash

June 1, 2007 Declared a 40% stock dividend

October 1, 2007 Declared a 2-for-1 split

December 1, 2007 Issued 60,000 shares for cash

Calculation of data above:

Date Actual Shares Calculation Weighted Average

1/1/07 100,000 100,000 x 12/12= 100,000

4/1/07 40,000 40,000 x 9/12 = 30,000

_______ ______

140,000 New Balance 130,000

6/1/07 56,000 40% stock dividend x140%

______ _______

196,000 New Balance 182,000

10/1/07 196,000 2 for 1 split x2

_________ _________

392,000 New Balance 364,000

12/1/07 60000 60 x 1/12 5,000
_______ _________

452,000 NEW BALANCE 369,000

Now assume that a 10% stock dividend was declared on January 7, 2008, before the financial statements for 2007 were issued. The weighted average number of common stock shares outstanding would be 405,900 (369,000 x 110% = 405,900) and the actual number of common shares outstanding to be reported on the Balance Sheet at December 31, 2007 would still be 452,000.

STEP 2: Compute basic EPS before any assumptions or adjustments:

Basic formula: Net income Preferred dividends (actually declared)

______________________________ ____________

Weighted Average Number of Common Shares Outstanding

The numerator should be the income available to common stockholders

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