CFA Practice Question

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CFA Practice Question

At the beginning of this year Aramed had 400,000 shares of common stock outstanding. Aramed paid a 10 percent stock dividend on March 31 of this year. Aramed issued 90,000 new common shares on June 30 of this year and repurchased 12,000 shares on December 1. The number of shares Aramed should use in computing earnings per share at the end of the year is ______.
A. 484,000
B. 475,000
C. 476,000
Explanation: Weighted Average Shares = Dividend Paid to shares prior to date = 400,000 * 1.1 = 440,000
Newly issued shares = 90,000 * .5 = 45,000
Repurchased shares = 12,000 * 1/12 = 1000
440,000 + 45,000 - 1000 = 484,000

User Contributed Comments 6

User Comment
Shelton "Stock Div." applies to previous CS,
"Split" applies to whole year
(400k*1.1*12+90*6-12*1)/12=484k
RAustin Can someone answer why they multiplied the 90k newly issued shares here by .5? Also it seems there is no accounting for the fact that there were only 400k shares for the first 1/3 of the year. Thnx.
mickykumar Hi RAustin. Technically you are correct abt the 1/3 issue. However the standard says that when a stock split/bonus/dividend are made it is always assumed that the transaction occured at the beginning of the period (Retroactive). Lastly the use of the 0.5 looks incorrect to me as well (30 June to 1 december) is not 6 months! Could be an error
dan1987 i believe the use of 0.5 is correct as you apply the % remaining of the year to action taken in this case issued 90k with 6 months remaining of the year
aleakos Ya the .5 is 6/12 because it's starting at the end of June-December
jacojacobs aleakos, it starts end of June to end of November actually, December should be excluded, because the 12,000 repurchase is on 1 Decembe
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