Washington, Inc. stock transactions during the year 2001 were as follows: January 1 720,000 shares issued and outstanding May 1 2 for 1 stock split occurred October 1 Acquisition of Block Corp. in exchange for 240,000 shares in a transaction accounted for by the pooling of interests method. What was Washington’s weighted average number of shares outstanding during 2001, for earnings per share (EPS) computation purposes? A) 1,680,000. B) 1,500,000. C) 1,740,000. D) 1,666,667.
B? I am not sure about “Pooling of interests method”
The ans is A: (720,000 * 2) after stock split which is assumed to be outstanding from Jan plus the acquisition of 240,000. So 1,400,000 + 240,000 = 1,680,000. the pooling interest method treats shares as though they were outstand from the begining of Jan too… a bit tricky that. Check this out too… Selected information from Able Company抯 financial activities in the year 2001 is as follows: • Net Income was $720,000. • 1,000,000 shares of common stock were outstanding on January 1. • 1,000 shares of eight percent, $1,000 par value preferred shares were outstanding on January 1 and dividends were paid in 2001. • The tax rate was 40 percent. • Dividends were paid in 2001. • The average market price per share was $20 in 2001. 6,000 shares of three percent $500 par value preferred shares, convertible into common shares at a rate of 30 common shares for each preferred share, were outstanding for the entire year. Able抯 diluted earnings per share (Diluted EPS) for 2001 was closest to: A) $0.55. B) $0.65. C) $0.66. D) $0.54.
Basic = (720 - 1000*0.08 - 6(500).03) / 1000 = 550/1000 = 0.55 For the preferred stock: Numerator impact = +90 Denominator impact = +180 EPS Change = .5 < .55 so dilutive Only choice that is dilutive above is .54 Choice D. To confirm: Diluted: (720 - 80) / (1000 + 180) = .54 Answer D
I have question for the 240,000 shares exchanged. Isn’t it like issuing new share or from treasury stocks? if so, should it be prorated for the time left i the year? 240,000 * 3/12 = 60,000 I can understand that in split scenario, we should treat the splited shares like form Jan. 1st. I always confused on this.
cpk123, i like the way you pieced it together. ans is D. how do you guys cope with time? i am begining to realise the time problem.
Ans D? (720-1000*1000@8%)/1m + 6000*30
smeet Even if they are not converted, if they are dilutive, a dilutive EPS must be calculated and presented. It says so clearly. There is no need for the conversion. It needs to be POTENTIALLY DILUTIVE. That is the test. CP
I read the quesiton . Wrong I thought that they could be converted at 30 dollars a share. I dunno why. REading a bit too fast
Isnt Basic would be 0.64? (72-8)/100 ?
Pooling of interests method is not permitted in Canada.
pooling of interests wasn’t even in the curriculum this year, was it?
For weighted average number of shares, When should we use proportion of the year as when the shares issued, or stock dividends paid? And when should treat as from jan. 1st? such as the split in the first example above. Can someone shed some lights for me? Thanks! Steve
Stock dividends and stock split always from Jan 1 Portion of the year for new issued stock and convertibles
Thasnk map1, this helps! I need to go back review notes.
cfaboston28, you forgot to subtract the 3%preferred dividends of $90,000.
cpk123 Wrote: ------------------------------------------------------- > Basic = (720 - 1000*0.08 - 6(500).03) / 1000 = > 550/1000 = 0.55 > > For the preferred stock: Numerator impact = +90 > Denominator impact = +180 > EPS Change = .5 < .55 so dilutive > > Only choice that is dilutive above is .54 Choice > D. To confirm: > > Diluted: (720 - 80) / (1000 + 180) = .54 > > Answer D I dont understand. If the pref is dilutive, why is the +90 number excluded from the dilutive calculation, yet included in the basic?