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xcpa
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Joined: 23 Mar 2011
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Posts: 7

Posted: 03 May 2011 at 20:19 \| IP Logged

I donā€™t understand why they multiply 29,400 by (4/12) if the stock was standing from March to June only.

Birch Corporation had net income for the year of $101,504 and a simple capital structure consisting of the following common shares outstanding:
Months Outstanding     Ā Number of shares
January-February        Ā 24,000
March-June        &n bsp;     29,400
July-November       Ā &nb sp;  36,000
December        Ā Ā     Ā Ā 35,040
     TOTAL    Ā Ā        Ā Ā 124,4 40

Assume Birch Corporation issued a 20% stock dividend on August 1. In this case, BEPS (rounded to the nearest cent) was
A. $2.41
B. $2.72
C. $2.88
D. $2.67

ANSWER is D
Stock dividends are assumed to have occurred at the beginning of the year. Thus, the weighted-average number of shares equals the amount before the dividend increased by 20%. BEPS equals income available to common shareholders divided by the weighted-average number of shares outstanding. The latter is calculated as follows:
24,000 x (2/12)        Ā Ā Ā 4,000
29,400 x (4/12)        Ā Ā Ā 9,800
36,000 x (5/12)        Ā Ā 15,000
35,040 x (1/12)        Ā Ā Ā 2,920
Weighted average      Ā Ā 31,720

Increasing 31,720 by an additional 20% results in $38,064 shares after the dividend. Thus, the BEPS amount is $2.67 (101, 504 / 38,064)

Any ideas??

now!now!now!
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Joined: 06 May 2010
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Posted: 04 May 2011 at 21:23 \| IP Logged

March, April, May and June - 4 months.

xcpa
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Joined: 23 Mar 2011
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Posts: 7

Posted: 06 May 2011 at 23:02 \| IP Logged

OMG, thank you. I don't know what I was thinking.

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