EPS

Question 1

In computing the weighted-average number of shares outstanding during the year, which of the following midyear events must be treated as if it had occurred at the beginning of the year?
A. Declaration and distribution of stock dividend.
B. Purchase of treasury stock
C. Sale of preferred convertible stock.
D. Sale of additional common stock.

Answer 1

In computing the weighted-average number of shares outstanding for earnings per share (EPS) determination, a stock dividend (or a stock split) to the same class of shareholders must be retroactively recognized and treated as if it had occurred at the beginning of the year. In addition, EPS for all prior periods presented must be adjusted as though the shares had been outstanding for the entire period presented.

The issuance (sale) of new shares and the repurchase of a firm’s shares (treasury stock) are included in the weighted-average number of share outstanding calculation from the date of the sale or purchase of the shares.