CFA Practice Question

There are 534 practice questions for this study session.

CFA Practice Question

On January 1, 2015 the Trading Co. had 487,500 shares of common stock outstanding. During 2015 it had the following transactions that affected the common stock account:

  • February 1: Issued 141,000 shares
  • March 1: Issued 10% stock dividend
  • May 1: Acquired 142,000 shares of treasury stock
  • June 1: Issued a 3-1 stock split
  • October 1: Reissued 79,000 shares of treasury stock

Determine the weighted average number of shares outstanding as of December 31, 2015.
A. 1,771,025
B. 1,425,350
C. 1,502,900
Explanation: Jan 1 - Feb 1: 487,500 * 1.1 * 3 * 1/12 = 134,062.5
Feb 1 - May 1: 628,500 * 1.1 * 3 * 3/12 = 518,512.5
May 1 - Oct 1: (628,500 * 1.1 * 3 - 142,300 * 3) * 5/12 = 686,687.5
Oct 1 - Jan 1: (1,727,050 + 79,000) * 3/12 = 431,762.5
Total: 1,771,025

User Contributed Comments 17

User Comment
KSB1 Can someone explain why the stock split and dividend are reflected throughout the year? My understanding was that these were to be treated as if they occured in the beginning of the year.
Bira The split is treat as if it was at the begginig, but notice that he reissues 79,000 after the split, which means 79,000/3 with you want to consider everything x3 at the end of calculations. It is correct.
ahan Where is 1,727,050 coming from?
sireklove Sorry, but I don't understand where the "1,727,050" figure in the Oct 1 - Jan 1 line comes from...

...and a small thing, in the May 1 - Oct 1 line shouldn't "142,300" be "142,000"

Any clarification would be great. Thanks.
SammyD9 seems there has been some double counting?? after 3 for 1 split there is a total no. of shares = 1648050 .... if 79000 is added to this then we arrive at 1727050

Oct 1 - Jan 1 should be 1727050 *3/12 = 431762.5
gsuwp anyone got 1,768,022 ??
gsuwp Ok I finally got it:(restated everything)

487600*1.1*3*12/12
141000*1.1*3*11/12
-142000*3*8/12
79000*3/12

Answer=1,771,024.73
dimos well done gsuwp
Shelton (487.5k*1.1*3*12
+141k*1.1*3*11
-142k*3*8
+79k*3)
/12
=1,771,025
bahodir gswup, mistype 487600
Instead it should be 487500
lizzyb how come the split is considered throughout the year when it only occurred in June?
lizzyb opps don't worry I read the LOS more clearly
pochuevalex Can anyone describe why stock dividend is not applied to treasury stock activities?
mishis he issues 79,000 after the split , which really means he reissued 26,334 =79,000/3.
cleopatraliao Thanks Shelton!!The way u present is much better than the other answers ... makes much more sense!!
prtwf hey pochuevalex:
its not a matter of applying it... since the stock dividends happened before the treasury buy back... the number of treasury shares is already adjusted for the dividends of 10%, no need to adjust/restate it again. also when a dividend is declared, it allies only to the shares outstanding at the time of declaration (+ a few days for counting all the shares... but that's not so important.)
schweitzdm Shelton's method is way easier. If you save the division by 12 until after it's simply easier.

Keep in mind that dividends do not affect treasury stock.
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