Is this a typo?

CFA Level I
#1

The question I got on Schweser is:

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) 1,000,000. B) 1,100,000. C) 1,200,000.

Your answer: A was incorrect. The correct answer was C) 1,200,000.

Shouldn’t the 400,000(3) be subtracted?

#2

It’s share issuance not share buy back. Since the company is selling stocks to individuals in order to get capital. In exchange for money they are the company is willing to give investors stocks. This increases # shares of the company. It will be subtraction if the question said retire/buy back 400,000 common/equity shares.

#3

anyone wanna go through the calculation for this real quick? i havent reviewed it in a while would help to see it done out once.

#4

1 Mill * 1.1 (10 % Stock dividend is retroactively applied) = 1.1 Mill + 0.4 Mill * 3/12 (400K shares for 3 months)= 0.1 Mill Total = 1.2 Mill.

#5

thanks i looked quick and was only using the 1.1 mm for the stock div for 6 months worth cuz it was issued in eo june forgot that it is retroactively applied

#6

You are right, thanks so much for the answer!