Calculating weighted average of common shares outstanding

CFA Level I FRA
#1

Here is the question from the CFA textbook:

[question removed by moderator]

My confusion is about the way authors calculate the weighted common shares. I thought that ($3,350,000 – $430,000) has to be divided by 2020000+ 7/12 (seven months since June 1 till the end of the year) 380000, which is equal to ($3,350,000 – $430,000)/(202000+7/12*380000).

Any advice that would help me to understand where I was wrong is appreciated

#2

Stock dividends, as with stock splits and reverse stock splits, are applied retroactively.

In essence, you had 2,020,000 + 380,000 = 2,400,000 shares outstanding for the entire year.

#3

I see, but warrants and convertible bonds are treated prospectively, am I right?

Thanks

#4

Only if they were issued during the year in question.

I doubt that they’d do that on the exam; they’ll usually be treated as exercised at the beginning of the year.

My pleasure.