In reference to the material on page 65 (SS#8) of the Schweser FRA book… I understand that if there is a 10% stock dividend that you would increase any shares outstanding and shares issued by 10% (pretty straightforward). But I don’t understand why if 10,000 shares are outstanding from the beginning of the year why the additional 1,000 shares from the stock dividend that took place on July1st would be applied for the entire year, rather than weighted for 6 months (July-Dec). In other words, the example is weighting 11,000 shares for 12 months, whereas I would expect 10,000 shares to be weighted for 12 months and the additional 1,000 shares from the dividend to just be weighted for 6 months. Any thoughts?
who cares, who knows, just remember it is so.
Other members correct me if I am wrong but: 11,000 shares for 12 months; because you need to apply the stock dividend/split retroactively jetfm11. Note that stock dividends and splits are retroactively restated to the begining of the peroid (including any prior periods presented) An exception when calculating WACSO
That’s what I was assuming, but it wasn’t explained in the Schweser material. Maybe it’s in the CFAI book. I’ll have to check. Thanks!
The reason for this is that nothing of economic substance really happened. 10,000 shares simply became 11,000 shares. The pizza is the same size, you’ve just cut it into smaller slices. OTOH, if new shares were issued mid-year in exchange for cash or other consideration, you do have a transaction of economic substance: You raised additional capital. You actually made the pizza bigger.
^MMMM i just ate pizza for dinner…it was delicious. So if you eat the pizza does that constitute it as treasury stock?
I’d called that convertible preferred. The Jon B Wrote: ------------------------------------------------------- > > So if you eat the pizza does that constitute it as > treasury stock?
jetmf11 Wrote: ------------------------------------------------------- > That’s what I was assuming, but it wasn’t > explained in the Schweser material. Maybe it’s in > the CFAI book. I’ll have to check. > > Thanks! I seriously doubt Schweser would make such a horrendous error without mentioning it in their Errata. I am pretty sure they explain it in the book itself.
I wasn’t trying to imply that Schweser was incorrect. I was just curious what the reasoning for treating stock dividends like they do when calculating EPS. I’m sure it’s correct, just wanted a little more detail so I could better wrap my head around it.
jetmf11 Wrote: ------------------------------------------------------- > I wasn’t trying to imply that Schweser was > incorrect. I was just curious what the reasoning > for treating stock dividends like they do when > calculating EPS. I’m sure it’s correct, just > wanted a little more detail so I could better wrap > my head around it. I understand. Robert’s explanation is spot on.