Please explain the following solution. My answer was B using the following equation: 1.1*1000000-400000*3/12 = 1000000 A company has the following sequence of events regarding their stock: * One million shares outstanding at the beginning of the year. * On June 30th, they declared and issued a 10% stock dividend. * On September 30th, they sold 400,000 shares of common stock at par. Basic earnings per share at year-end will be computed on how many shares? A) 1,600,000. B) 1,000,000. C) 1,200,000. D) 1,100,000. Your answer: B was incorrect. The correct answer was C) 1,200,000. 1,000,000(12) = 12,000,000 100,000(12) = 1,200,000 400,000(3) = 1,200,000 Total = 14,400,000 / 12 = 1,200,000
“100,000(12) = 1,200,000” is bogus
So what do you mean JDV?? Is schweser wrong? What is the correct answer?
I was under the impression that stock splits and stock dividends are calculated as if they had taken place at the beginning of the year? … at least that’s what Schweser has been teaching me. Though it wouldn’t make much sense to do it in this scenario: Jan: 100,000 oustanding Feb: issue 10,000 shares March: issue 10% dividend Can anyone clarify? My brain simply tells me to weigh each share issue, dividend or repurchase based on the # of months that it affects in the remainder of the year, but this doesn’t seem to be getting the right answer.
Since it is a 10% stock dividend 1. Mill * 1.1 gets counted from beginning of the year. and then the 400K is issued for 3 months. So 1/1 1 Mill * 1.1 * 12/12 = 1.1 6/1 .1 Stock Div 9/30 .4 * 3/12 = .1 So total is 1.2 Million, as Schweser has calculated. It is right. CP
1,200,000 is the answer the way it’s arrived at is incorrect. Calculations are: +1,000,000 + 100,000 for the stock dividend + 3/12 x 400,000 for the new shares outstanding = 1,200,000
So stock dividends are always accounted for as though it had been issued at the beginning of the year? What about this scenario? Jan: 100,000 oustanding Feb: issue 10,000 shares March: issue 10% dividend
100 * 1.1 * 12/12 + 10 * 1.1 * 11/12 is your answer 110 + 10.083 = 120.083 K Edit: so the stock dividend is active from the beginning of the period for which the shares are active.
Thanks cpk123
It is always better to solve such problems with the timeline, so you know where you need to put in the stock dividend and for how long. CP