What is the correct treatment of a stock dividend issued in mid-year when computing the
weighted average number of common shares outstanding for earnings per share purposes?
This is more of an accounting question rather than an economics question; and accounting is not my area.
That said, I believe this site has the answer you seek.
http://www.justanswer.com/questions/1uamp-1-computing-earnings-per-share
To determine the correct treatment of a stock dividend issued in the middle of the year for calculating earnings per share (EPS), you need to follow these steps:
1. Obtain the number of common shares outstanding before the stock dividend is issued. This information is typically provided in the company's financial statements or disclosures.
2. Determine the total number of additional shares issued as part of the stock dividend. This information is typically provided in the company's dividend announcement or declaration.
3. Calculate the weighted average number of common shares outstanding. This is done by multiplying the number of common shares outstanding before the stock dividend by the portion of the year for which they were outstanding, and adding it to the number of additional shares issued multiplied by the portion of the year for which they were outstanding.
For example, let's assume the following scenario:
- Company XYZ had 100,000 common shares outstanding before the stock dividend
- The stock dividend issued was 10% (i.e., 10,000 shares)
- The stock dividend was issued on July 1st, meaning it was outstanding for half of the year (6 months)
To calculate the weighted average number of common shares outstanding, you would perform the following calculations:
- Common shares outstanding before stock dividend: 100,000 shares x 6/12 = 50,000 shares
- Additional shares issued as part of the stock dividend: 10,000 shares x 6/12 = 5,000 shares
- Weighted average number of common shares outstanding = 50,000 shares + 5,000 shares = 55,000 shares
It's important to note that this treatment assumes that the stock dividend did not have a retroactive effect on the number of shares outstanding for prior periods. If the stock dividend did impact the number of shares outstanding for prior periods, a restatement of the EPS calculations may be necessary.
Always refer to the specific accounting standards or consult an accountant or financial professional for guidance and to ensure accurate treatment of stock dividends for EPS purposes.