Home Forums CFA CFA Level 1 Need Help! Financial Accounting Stock dividend

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  • #2122

    Given the following information

    Jan 1st issued shares outstanding 10,000
    April 1st issued shares 4,000
    July 1st 10% stock dividend
    Sep 1 shares repurchased 3,000

    I am surprised that the weighted average days are computed this way
    January (10,000 * 12) + (10% stock dividend is 1,000 * 12) = 132,000
    April (4,000 * 9) + (10% stock dividend is 400 * 9) = 39,600
    Sep (-3,000 * 4) = -12,000

    Rather than
    January (10,000 * 12) + (10% stock dividend is 1,000 * 6) = 126,000
    April (4,000 * 9) + (10% stock dividend is 400 * 6) = 38,400
    Sep (-3,000 * 4) = -12,000

    Can somebody explain why we take the whole period since issuance if stock dividend happened later? Thank you very much

    • This topic was modified 1 year, 5 months ago by  admin.
    • This topic was modified 1 year, 5 months ago by  admin.
    #2139

    admin
    Keymaster

    Stock dividend or Stock split changes must be applied retroactively to the beginning of the period, this is because it changes the entire number of shares outstanding and not just those issued after the stock dividend/split.

    Assume that 100 shares outstanding for 6 months and then 1 share gets split in 2 on 1 July, then the calculation will be 100 * 2 * 12 and not, 100 * 6 + 200 * 6.

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