[wishiwasaCPA]

Yet again, I am 100% lost. I’ve been staring at these two problems for the past hour with zero progress whatsoever. Cannot wrap my mind around it:

#1:

Shares outstanding 1/1 = 100,000

Stock dividend – 3/31 = 24,000

Stock Issuance -6/30 = 5,000

Find the BASIC wacso:

Answer: 124,000 x 1/2 = 62,000 + 129,000 *1/2 = 64,500 for a total of 126,500.

#2:

Common shares outstanding 1/1 = 700,000

Common shares repurchased 3/31 = 20,000

Conversion of preferred shares 6/30 = 40,000

Common shares repurchased 12/1 = 36,000

Find the BASIC wacso:

Answer: 700,000 x 12/12 = 700,000 + 20,000 x 9/12 = (15,000) + 40,000 x 6/12 = 20,000 + 36,000 x 1/12 = (3,000 for a total of 702,000.

My questions are:

1. Why do I have to multiply by 6/12 in problem #1 but in problem #2 I multiply by 9/12 for a transaction on 3/31? And why aren’t both of them for 3/12 (Jan-Mar)?

2. Why do I add the 24,000 and 100,000 together in problem #1 but in problem #2 they are all separately calculated?

3. If there is no clarification between whether to compute the basic wacso or the diluted wacso, how can I tell which one to use?

4. I’m finding a trend that sometimes a wacso will be computed and use the # of months as “count down” basis so January would be multiplied by 12/12, April by 8/12, then other problems will be the reverse (1/12 and 4/12). I really really have no idea what is going on and I am obsessing over figuring it out. I’ve re-watched the lecture, looked up online, everything and there is no explanation that is working. Hopefully someone here knows whats going on, but I have a feeling most people will read this and move on – I don’t blame you.

I am using Becker review which is absolutely no help. Clicking on the “explain” feature just reads you the question, then reads you the answer. Works more like a “read aloud” feature.

Take FAR Feb 15, I will continue hating my life and everything in it until then.

[huytuan124]

There're 2 ways to calculate the wacso (the conventional textbook way and “count down” basis ways as you mentioned) and I think you got confused by them. I'll try to take a stab at #1 with both ways. Hopefully it will help

1. Textbook way:

– 1/1 -> 6/30: total 124,000 (stock div is treated as if it's been outstanding from the beg. of the year) X 6/12 = 62,000

– 7/1 -> 12/31: (124,000 X 6/12) + (5,000 X 6/12) = 64,500

– Add them up and you got 126,500

2. “Count down” basis way

– 1/1: 100,000 X 12/12 (these 100,000 share will be outstanding for the whole year)

– 3/31: [24,000 X 12/12 = 24,000] + 100,000 calculated above = 124,000

– 6/30: 5,000 X 6/12 = 2,500

– So add them up 124,000 + 2,500 = 126,500

With either ways, you got to the same answer.

FAR: 80 02/01/2014
AUD: 53,80 12/09/2014
BEC: TBD
REG: TBD

Yaeger Home Study + Ninja Audio

[huytuan124]

There're 2 ways to calculate the wacso (the conventional textbook way and “count down” basis ways as you mentioned) and I think you got confused by them. I'll try to take a stab at #1 with both ways. Hopefully it will help

1. Textbook way:

– 1/1 -> 6/30: total 124,000 (stock div is treated as if it's been outstanding from the beg. of the year) X 6/12 = 62,000

– 7/1 -> 12/31: (124,000 X 6/12) + (5,000 X 6/12) = 64,500

– Add them up and you got 126,500

2. “Count down” basis way

– 1/1: 100,000 X 12/12 (these 100,000 share will be outstanding for the whole year)

– 3/31: [24,000 X 12/12 = 24,000] + 100,000 calculated above = 124,000

– 6/30: 5,000 X 6/12 = 2,500

– So add them up 124,000 + 2,500 = 126,500

With either ways, you got to the same answer.

FAR: 80 02/01/2014
AUD: 53,80 12/09/2014
BEC: TBD
REG: TBD

Yaeger Home Study + Ninja Audio

[wishiwasaCPA]

Thank you, that makes sense. So here is one more example:

The following information pertains to Jet Corp's outstanding stock for Y2:

Shares outstanding 1/1, Y2 = 20,000

2 for 1 split, 4/1 Y2 = 20,000

Shares issued, 7/1 Y2 = 10,000

Answer:

1/1 Y2 20,000 + 4/1 Y2 20,000 = 40,000 x 6/12 = 20,000

+ 50,000 x 56/12 = 25,000

So, if the stock split took place on 4/1, then why isn't the answer to multiply 20,000 x 3/12 x 2 = 10,000 then take 50,000 (40,000 +10,000 issued) x 6/12 = 25,000 for a total of 35,000.

[wishiwasaCPA]

Thank you, that makes sense. So here is one more example:

The following information pertains to Jet Corp's outstanding stock for Y2:

Shares outstanding 1/1, Y2 = 20,000

2 for 1 split, 4/1 Y2 = 20,000

Shares issued, 7/1 Y2 = 10,000

Answer:

1/1 Y2 20,000 + 4/1 Y2 20,000 = 40,000 x 6/12 = 20,000

+ 50,000 x 56/12 = 25,000

So, if the stock split took place on 4/1, then why isn't the answer to multiply 20,000 x 3/12 x 2 = 10,000 then take 50,000 (40,000 +10,000 issued) x 6/12 = 25,000 for a total of 35,000.

[huytuan124]

wishiwasaCPA,

The stock split is treated the same as stock dividends. And BTW, can you tell me why you multiply 20,000 x 3/12 x 2 = 10,000? Maybe we can figure out from there.

FAR: 80 02/01/2014
AUD: 53,80 12/09/2014
BEC: TBD
REG: TBD

Yaeger Home Study + Ninja Audio

[huytuan124]

wishiwasaCPA,

The stock split is treated the same as stock dividends. And BTW, can you tell me why you multiply 20,000 x 3/12 x 2 = 10,000? Maybe we can figure out from there.

FAR: 80 02/01/2014
AUD: 53,80 12/09/2014
BEC: TBD
REG: TBD

Yaeger Home Study + Ninja Audio

[wishiwasaCPA]

The book has an example that takes:

1/1 shares outstanding on of 1,000,000

3/31 is a 2 for 1 stock split

4/1 Additional shares are issued of 3,000,000

12/1 treasury stock is reacquired for 500,000

So it takes

1,000,000 x 3/12 (Jan-Mar) x 2 = 500,000

5,000,000 x 8/12 (April – Nov) = 3,333,333

4,500,000 x 1/12 (Dec) = 375,000

For a total of 4,208,333. I don't see how this is any different than the other question as far as the stock split goes.

I was thinking that using that logic (for the other question) I would take the shares outstanding on 1/1 Y2 of 20,000, then the split occurs on 4/1 so the shares outstanding is still 20,000 at that point, so multiply by 3/12 (Jan – April 1) for the period outstanding, then 2 to account for the split. Then I would take 50,000 shares x 1/2 (June – Dec) for 25,000. I know I am using flawed logic somewhere but I just can't piece it together.

[wishiwasaCPA]

The book has an example that takes:

1/1 shares outstanding on of 1,000,000

3/31 is a 2 for 1 stock split

4/1 Additional shares are issued of 3,000,000

12/1 treasury stock is reacquired for 500,000

So it takes

1,000,000 x 3/12 (Jan-Mar) x 2 = 500,000

5,000,000 x 8/12 (April – Nov) = 3,333,333

4,500,000 x 1/12 (Dec) = 375,000

For a total of 4,208,333. I don't see how this is any different than the other question as far as the stock split goes.

I was thinking that using that logic (for the other question) I would take the shares outstanding on 1/1 Y2 of 20,000, then the split occurs on 4/1 so the shares outstanding is still 20,000 at that point, so multiply by 3/12 (Jan – April 1) for the period outstanding, then 2 to account for the split. Then I would take 50,000 shares x 1/2 (June – Dec) for 25,000. I know I am using flawed logic somewhere but I just can't piece it together.

[huytuan124]

Hi wishiwasaCPA

You're absolutely right for the period Jan-Apr 1, and then June-Dec. But then you're missing Apr-June period. You'll need to do the same for this period: 20,000 x 3/12 x 2 = 10,000 (3 months Apr-June)

Another way to do this is: 20,000 x 6/12 x 2 (6 periods Jan-June) = 20,000. And then do what you did for the rest of the year (40,000 +10,000 issued) x 6/12 = 25,000. Add them up and you got 45,000

FAR: 80 02/01/2014
AUD: 53,80 12/09/2014
BEC: TBD
REG: TBD

Yaeger Home Study + Ninja Audio

[huytuan124]

Hi wishiwasaCPA

You're absolutely right for the period Jan-Apr 1, and then June-Dec. But then you're missing Apr-June period. You'll need to do the same for this period: 20,000 x 3/12 x 2 = 10,000 (3 months Apr-June)

Another way to do this is: 20,000 x 6/12 x 2 (6 periods Jan-June) = 20,000. And then do what you did for the rest of the year (40,000 +10,000 issued) x 6/12 = 25,000. Add them up and you got 45,000

FAR: 80 02/01/2014
AUD: 53,80 12/09/2014
BEC: TBD
REG: TBD

Yaeger Home Study + Ninja Audio

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