FAR MC – EPS Calc

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    Topic
  • #195563
    cpa1988
    Participant

    I don’t get the period outstanding here. I thought that for shares sold and reacquired, you account for how long between the time they are sold or acquired until the end of the year. I have done other problems where that is the calculation. For example, for the 4/1 issuance of 30,000 shares, I thought it would be 30,000*(9/12). I do not get what is happening here.

    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 36,000 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?

    a. 150,675

    b. 162,342

    c. 131,000

    d. 139,008

    Explanation

    Choice “d” is correct. See chart below for calculation. Stock dividends are assumed to be issued at the beginning of the year. The 139,300 is calculated as follows: 166,000 shares × 1.05 = 174,300 outstanding when the treasury shares are acquired. Then, 174,300 minus 35,000 treasury shares = 139,300.

    Total Shares × Period Outstanding × Adjustment for dividend = Weighted Avg.

    100,000 3/12(Jan-Mar) 1.05 26,250

    130,000 2/12(Apr-May) 1.05 22,750

    166,000 3/12(June-Aug) 1.05 43,575

    139,300 4/12(Sept-Dec) 46,433

    Weighted Average = 139,008

    Choice “c” is incorrect. The 5% stock dividend must be treated as though it occurred at the beginning of the year. The shares outstanding before the stock dividend must be restated for the portion of the year before the stock dividend.

    Choice “a” is incorrect. The purchase of treasury stock reduces the amount of shares outstanding.

    Choice “b” is incorrect. The purchase of treasury stock is a reduction, not an addition to the amount of shares outstanding.

Viewing 4 replies - 1 through 4 (of 4 total)
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  • #682668
    U.S._GAAP
    Member

    Starting point is 100,000 shares outstanding

    4/1 Issued 30,000 shares of common stock. (This was outstanding 9/12 months; (9/12) * 30,000 = 22,500)

    6/1 Issued 36,000 shares of common stock. (5/12 months outstanding = (5/12 * 36,000) = 21,000)

    7/1 Declared a 5% stock dividend. (Stop and sum the current balance. Balance = 143,500; multiply by1.05 to arrive at 150,675

    9/1 Purchased as treasury stock 35,000 shares of its common stock (A reduction of shares outstanding, effective for 4/12 months. 4/12 * 35,000 = 11,667 fewer shares

    Total = 150,675 – 11,667 = 139,008 (d)

    REG: 78 (2/11/15)
    AUD: 86 (4/8/15)
    BEC: 88 (5/28/15)
    FAR: 89 (7/16/15)

    Study Materials: Becker Self Study

    Average Study Time Per Exam: 5 weeks

    #682669
    12tang
    Participant

    Here is how I solved it:

    1/1: 100,000 * 12/12 = 100,000

    4/1: 30,000 * 9/12 = 22,500

    6/1: 36,000 * 7/12 = 21,000

    -Add these together for total 143,500-

    5% stock dividend 1.05 * 143500 = 150,675

    9/1: (35,000) * 4/12 = (11,667)

    -Difference = 139,008 (answer)-

    BEC - PASS

    FAR - PASS

    AUD - PASS

    REG - PASS

    BOOM!  JUST LIKE THAT, I GOT MY LIFE BACK!  =D

    Using Becker self-study
    FAR: (82) 175 hours - 1st attempt
    BEC: (XX)
    AUD: (69) 45hrs of study - 1st attempt
    REG: (XX)

    #1273152
    parvaluemethod
    Participant

    I take issue with the explanation. I get 140,133. Stock dividends are assumed to be outstanding from the beginning of the year (right?). The stock dividend is 8,300 shares. So instead of starting with 100,000 shares at the beginning of the year, we start with 108,300. So:

    108,300*3/12 + 138,300*2/12 + 174,300*3/12 + 139,300*4/12

    OR

    8,300*12/12+
    100,000*12/12+
    30,000*9/12+
    36,000*7/12-
    35,000*4/12

    Both equal to 140,133.

    AUD - 94
    BEC - NINJA in Training
    FAR - 83
    REG - NINJA in Training
    Using Becker.
    #1273180
    parvaluemethod
    Participant

    Never mind…The methods posted above by others are correct. The 5% stock dividend needs to be applied to each new issue of shares and the beginning balance.

    AUD - 94
    BEC - NINJA in Training
    FAR - 83
    REG - NINJA in Training
    Using Becker.
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