AuthorTopic: Confused: a question about earnings per share.
sherleen
@2014-04-18 09:54:26
A company has the following sequence of events regarding their stock:

One million shares outstanding at the beginning of the year.
On June 30th, they declared and issued a 10% stock dividend.
On September 30th, they sold 400,000 shares of common stock at par.

Basic earnings per share at year-end will be computed on how many shares?

A) 1,000,000.
B) 1,100,000.
C) 1,200,000.

Correct answer: C) 1,200,000.

Shouldn't the 400,000(3) be subtracted?
karidova
@2014-04-21 20:43:16
It's share issuance not share buy back. Since the company is selling stocks to individuals in order to get capital. In exchange for money they are the company is willing to give investors stocks. This increases # shares of the company. It will be subtraction if the question said retire/buy back 400,000 common/equity shares.

CFA Discussion Topic: Confused: a question about earnings per share.

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