The following information pertains to Ceil Co., a company whose common stock trades in a public market:
Shares outstanding at 1/1= 100,000
Stock dividend at 3/31= 24,000
Stock issuance at 6/30= 5,000
What is the weighted-average number of shares Ceil should use to calculate its basic earnings per share for the year ended December 31?
the correct answer is d and my question is how did they get this?
The way I calculated was: 100,000 * (3/12)= 25,000 3 months until 3/31 + 124,000*(3/12)= 31,000 (3 months until 6/30) + 129,000*1/2 (6 months until you get till december= 120,500. It seems like I am screwing up somewhere, an someone explain it to me
When there is a stock dividend, you increase the shares outstanding into the future and into the past, because we want to keep things apples-to-apples.
One share before the stock dividend is equal to 1.24 shares after the stock dividend. So, when we calculate the average shares outstanding, we do so on the “1.24 basis” so to speak. So we consider there to be 124k shares outstanding between 1/1 and 6/30.