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 Topic: FAR - Earnings Per Share | EPS ( Topic Closed)
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jay_usa
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| Posted: 28 Apr 2009 at 21:36 | IP Logged
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The following information pertains to Jet Corp.'s outstanding stock for 1992:
Common stock, $5 par value
Shares outstanding, 1/1/92 20,000
2-for-1 stock split, 4/1/92 20,000
Shares issued, 7/1/92 10,000
Preferred stock, $10 par value, 5% cumulative
Shares outstanding, 1/1/92 4,000
What are the number of shares Jet should use to calculate 1992 earnings per share?
This is the answer from becker
1/1/92 Shares outstanding 20,000
4/1/92 2-for-1 stock split 20,000
40,000 ´ 1/2 (6 mos) = 20,000
7/1/92 Share issued 10,000
50,000 ´ 1/2 (6 mos) = 25,000
Weighted average shares O/S 45,000
Choice "b" is correct. 45,000 shares should be used to calculate 1992 EPS.
My question is why they are taking 6 months for 2 for 1 stock split of 20000 ? Should not that be 9 months ?or am I missing something here ?
I got answer to the question right with following: Does this makes sense ?
First 20000 - for whole year. = 20000
stock split always beginning of the year, so whole year = 20000
New shares issues 10000 * 6/12 - because the date is July 1, 92 - = 5000
Therefore, 20000 + 20000 + 5000 = 45000
Thanks in advance for any help.
Jay
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Jay CPA,CGMA,CITP,MBA
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neott
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| Posted: 28 Apr 2009 at 22:06 | IP Logged
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Hi, jay_usa, ur approach to the question is fine, so does the explanation on homework CD.
The CD was calculating weighted average of TOTAL shares outstanding from the beginning of the year. They were taking 6 months for the total of 20K shares issued 1/1/92 and 20K 2-for-1 stock split 4/1/92. The 40K shares were outstanding for half a year until new shares were issued on 7/1/92. That's why they took 6 months off.
Personally I prefer your approach because it's simple.
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jay_usa
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| Posted: 28 Apr 2009 at 22:39 | IP Logged
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Thank you very much, Neott. I now understand the answer.
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Jay CPA,CGMA,CITP,MBA
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Xalina
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| Posted: 16 Sep 2009 at 20:51 | IP Logged
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Can you use this approach if Treasury stock is purchased before the stock split?
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