[Stgeorge]

Balm Co. had 100,000 shares of common stock outstanding as of January 1. The following events occurred during the year:

4/1 Issued 30,000 shares of common stock.

6/1 Issued 30,000 shares of common stock.

7/1 Declared a 5% stock dividend.

9/1 Purchased as treasury stock 35,000 shares of its common stock. Balm used the cost method to account for the treasury stock.

What is Balm’s weighted-average of common stock outstanding at December 31?

131,000

139,008

150,675

162,633

This answer is incorrect because the weighted-average common stock outstanding on December 31, is calculated as follows:

Date and Total

Shares Time Stock

Dividend Weighted

average

1/1 100,000 shares

(given) × 3/12 × 1.05 = 26,250

4/1 130,000 shares

(100,000 + 30,000) × 2/12 × 1.05 = 22,750

6/1 166,000 shares

(130,000 + 36,000) × 1/12 × 1.05 = 14,525

7/1 174,300 shares

(166,000 + 8,300) × 2/12 × = 29,050

9/1 139,300 shares

(174,300 − 35,000) × 4/12 × = 46,433

12/12 = 139,008

So just a question as to why at 7/1 they multiply 166,000 by the stock dividends. On page 588 in the Wiley book it goes over an example similar to this and they do not multiply the 5% on the date of the stock dividends. I thought it made sense since to calculate the WTG AVG of CS outstanding you apply stock dividend as if they happened at the beginning of the year so there would be no need to multiply the stock spit again at the date the stock split was issued.

Hence they should of applied 166,000 shares outstanding for 3 months and not accounted for the extra 5% stock dividend in 7/1. Could someone please confirm this? Dont know if I should be trusting the Wiley Book or WTB.

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[jstay]

thats what i thought too and when i worked your problem without the answer i had done the same thing as you

100,000 x 3/12×1.05

130,000 x 2/12 x 1.05

160,000 x 3/12 x 1.05

(didnt have calculator to figure this out) -35,000 x 4/12

[Mjganier]

I've never worked it out that way. I always start with the total they have outstanding all year and work down.

outstanding all year 100,000

30,000 x 9/12 22,500

36,000 x 7/12 21,000

Total 143,500

5% dividend 143,500 x .05 7,175

35,000 x 4/12 (11,666)

Total 139,008

Doing it this way will work every single time. I guarantee it. Stock dividends and stock splits just aren't allocated like the others (issued stock and treasury purchased) they're just assumed to have been outstanding all year. So you just take the total number at the date of the dividend and multiply it by the % and then add it.

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[Lidis]

Hello Mjganier

Tthe problem says on 6/1 30,000 of common stock were issued. You have 36,000 shares. How did you get this number

Thank you

Lidis

[Mjganier]

The problem posted is a misprint. It's supposed to say 36,000 for 6/1. In the computation of the problem in the OP's post, it says 130,000 + 36,000 = 166,000. I've also encountered the exact same problem in CPAexcel.

FAR 8/18/2014--87
AUD 10/18/2014--78
REG 11/24/2014--76
BEC 2/28/2015--76

"If you can't explain it simply, you don't understand it well enough"-Albert Einstein

Study Mats: Cpaexcel study text and EQ, Ninja MCQ, Ninja notes

[Author]

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