please explain this question from EPS .i always get this wrong…i cant understand the computation of 2nd year Weighted average shares outstanding
Strauch Co. has one class of common stock outstanding
and no other securities that are potentially convertible into
common stock. During year 1, 100,000 shares of common
stock were outstanding. In year 2, two distributions of
additional common shares occurred: On April 1, 20,000 shares
of treasury stock were sold, and on July 1, a 2-for-1 stock split
was issued. Net income was $410,000 in year 2 and $350,000
in year 1. What amounts should Strauch report as basic
earnings per share in its year 2 and year 1 comparative income
statements?
Year 2 Year 1
a. $1.78 $3.50
b. $1.78 $1.75
c. $2.34 $1.75
d. $2.34 $3.50
Ans is b.
@Wannabe –
YR1: (350,000) / (100,000 * 2) = $1.75
YR2:(410,000) / ((100,000) + ( 9/12 * 20,000)*2) = $1.78
(Treasury stock re-issued increases C/S outstanding as of April 1 -December 31 (9/12 mos))
I feel like Becker is pretty vague on this – I don't really like how they explain it or how they show the stock dividend/split examples either.
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