ExpertHard1 markMultiple Choice
CPA · Question 05 · Area I: Financial Reporting
A company had the following equity transactions in Year 1:<br/>- Jan 1: 100,000 shares outstanding.<br/>- Apr 1: Issued 20,000 shares.<br/>- July 1: Declared and issued a 10% stock dividend.<br/>- Oct 1: Purchased 12,000 shares as treasury stock.<br/><br/>What is the weighted average number of shares outstanding (WASO) for Year 1?
A company had the following equity transactions in Year 1:<br/>- Jan 1: 100,000 shares outstanding.<br/>- Apr 1: Issued 20,000 shares.<br/>- July 1: Declared and issued a 10% stock dividend.<br/>- Oct 1: Purchased 12,000 shares as treasury stock.<br/><br/>What is the weighted average number of shares outstanding (WASO) for Year 1?
Answer options:
A.
118,000
B.
124,000
C.
123,500
D.
129,800
How to approach this question
Stock dividends/splits are treated retroactively to the beginning of the earliest period presented. Treasury stock transactions are weighted for the portion of the year they were held.
Full Answer
C.123,500✓ Correct
C
1. Jan 1 Balance: 100,000 shares. Apply 10% stock dividend retroactively: 100,000 × 1.10 × 12/12 = 110,000.<br/>2. Apr 1 Issuance: 20,000 shares. Apply 10% stock dividend retroactively: 20,000 × 1.10 × 9/12 = 16,500.<br/>3. Oct 1 Treasury Purchase: (12,000) shares. Weighted for 3 months: (12,000) × 3/12 = (3,000).<br/>Total WASO = 110,000 + 16,500 - 3,000 = 123,500.
Common mistakes
Failing to apply the stock dividend to the April issuance; weighting the stock dividend only from July 1 (it must be retroactive).
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