An analyst gathers the following information about a company’s common stock:
- 1 January 2013: 200,000 shares outstanding
- 1 June 2013: 50,000 shares issued
- 1 August 2013: two-for-one stock split
- 31 December 2013: 500,000 shares outstanding
To calculate earnings per share for 2013, the company’s weighted average number of shares outstanding is closest to:
- 333,333.
- 350,000.
- 458,332.
Solution
C is correct. The weighted average number of shares (WACS) is determined by the length of time each quantity of shares was outstanding. A stock split is treated as if it occurred at the beginning of the year.
EventWACS200,000 × 5/12 (January–May)83,333250,000 × 7/12 (June–December)145,833Total before split229,166Including effect of 2:1 split458,332
A is incorrect. It only splits from Aug 1: 83,333 + (250,000 × 2/12) = 125,000 to Aug 1.
125,000 + 500,000 × 5/12 = 125,000 + 208,333 = 333,333
