Basic EPS question (CPA-01203):
Common stock, $5 par value
Shares outstanding, 1/1/Year 2 20,000
2-for-1 stock split, 4/1/Year 2 20,000
Shares issued, 7/1/Year 2 10,000
Preferred stock, $10 par value,
5% cumulative Shares outstanding, 1/1/Year 2 4,000
Solution:
1/1/Year 2 Shares outstanding 20,000
4/1/Year 2 2-for-1 stock split 20,000
Total 40,000 x 1/2 (6 mos) = 20,000
7/1/Year 2 Share issued 10,000
Total 40,000 (after stock split) + 10,000 = 50,000 x 1/2 (6 mos) = 25,000
Weighted-average shares Outstanding = 45,000 = 20,000 + 25,000
I understand that the shares issues in 7/1 need to be pro-rated (weighted average) but why does the 40,000 total resulting after the stock split also get pro-rated 6 months if it was issued on 4/1? Besides, aren't stock splits/dividends supposed to treated retrospectively? As if they had occurred since the beginning of the year?
Please help me understand!
BEC: 73, 81
AUD: 85
FAR: 71, 77
REG: 74, 75...finally DONE! 😀
*This is my 2nd attempt at the CPA exam. For all of you who have failed this exam many times, given up on it, or taken a break like me, remember that it is still possible to finish what you started...failure is the opportunity to begin again more intelligently 🙂
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