- CFA Exams
- CFA Level I Exam
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 21. Understanding Income Statements
- Subject 7. Earnings per Share
CFA Practice Question
The following data pertains to the Megatron company:
5,000 shares of common stock issued on January 1
10% stock dividend issued on June 1
1,000 shares of common stock repurchased on July 1
1,000 shares of 10 percent, par $100 preferred stock, each convertible into 8 shares of common stock, were outstanding the whole year.
Net income: $15,000
5,000 shares of common stock issued on January 1
10% stock dividend issued on June 1
1,000 shares of common stock repurchased on July 1
1,000 shares of 10 percent, par $100 preferred stock, each convertible into 8 shares of common stock, were outstanding the whole year.
How many common shares should be used in computing the company's basic earnings per share (EPS)?
A. 5,500
B. 4,500
C. 5,000
Explanation: 1/1 5,500 shares issued (includes 10% stock dividend on 6/1) x 12 = 66,000
7/1 1,000 shares repurchased x6 months = -6,000 = 60,000
60,000 shares/12 months = 5,000 average shares
7/1 1,000 shares repurchased x6 months = -6,000 = 60,000
60,000 shares/12 months = 5,000 average shares
User Contributed Comments 6
User | Comment |
---|---|
chenyx | 5000*1.1*6/12+(5000*1.1-1000)*6/12 |
iceluke | if you have stock dividends, restate the whole previous period |
alki | buyback should be kept out of the stock div calc... |
achu | Good points iceluke, alki. |
Lamkerst | stock div is retroactive stock split is for the whole period |
chandsingh | Hi, so from above stock dividends are assumed to have happened from the start - however what do you mean that stock splits are for the whole period? |