 Hello and welcome to this session. This is Professor Fahad in which we would look at a CPA simulations that deals with earnings per share. This topic is also covered in intermediate accounting. As always, I would like to remind you to connect with me on LinkedIn if you haven't done so. YouTube is where you would need to subscribe. I have 1700 plus accounting, auditing, tax, finance as well as Excel tutorial. If you like my lectures, please like them, share them, put them in the playlist. If they benefit you, it means they might benefit other people, connect with me on Instagram. On my website, www.fahadlectures.com, this is where I can help you if you're studying for your CPA exam, where I explain the material in the tales, such as earnings per share, pension, leases, auditing, section 351 for taxation. Practically most CPA courses I do have you cover. Check out my website. One subscription gives you access to everything. If you are serious about your CPA, let me know. Let's take a look at this problem. This problem could be given to you in a form of a multiple choice or in a form of assimilation. And basically the question is asking, what is the weighted average number of shares outstanding? Now in a multiple choice, I don't think they will give you that long of a multiple choice. Okay, for a multiple choice, they might give you less data and you would need to compute the weighted average number of shares outstanding. They might give you this as a simulation and this is where my value comes in. I will show you how to approach assimilation where you are being asked to compute the weighted average number of shares. So let's look at what we are giving and we're going to work two versions of this problem. This way, I want to make sure you are comfortable with the basic version and if they throw at you something more than the what I called end quote and you know what, take the word basic, a simple one and not a simple one. Okay, because the word basic could mean something else. So let's take a look at this exercise. On January 1st, 2022, laptop corporation had 25,000 shares of its five power value common stack outstanding. Okay, so we're starting with 25,000 shares. On March 1st, which is two months later, the corporation sold issued an additional 50,000 shares in the open market at $25 per share. The corporation issued 20% stock dividend. You know what? For this version, I'm going to take out the stock dividend. So I'm going to, I'm not going to look at this dividend. We'll work it in the second version of it. On August 1st, so from from March to August, the corporation purchased, it means they bought back 28,000 shares and immediately retired the stock November 1st, 40,000 shares were sold for $30,000. So basically we have four different events. January 1st, March 1st for this problem, November 1st in August 1st. So how do you approach the problem like this? Let me just clear everything because now it's getting very messy. Let me just clear everything but keep the stock dividend out, keep the stock dividend out. So let's see. The first thing you need to do is prepare this table and this is the table what it should look like. So make sure you can memorize this. You have dates outstanding, shares outstanding, restatement, fraction of a year and weighted shares. Okay. Good job, Daddy. Okay, thank you. Yes, you did a good job. So the first thing we do is we're gonna start with dates outstanding. The first date outstanding, it went from January till March. So from January till March, what happened? We had 25,000 shares. This is what we started with. Was there any restatement? Again, we're gonna ignore the stock dividend. There was no restatement. The fraction of a year is 212. From January 1st till March 31st, you had 25,000 shares. That's 212 of the year. So you will take 25,000 times 212 and the weighted average number of shares is 4167. Okay. Now, let me change this scenario one more time. Let's assume this is the only statement you are giving. On January 1st, laptop had 25,000 shares and that's it. And it ended the year with that. Then January 1st till December 31st, that's 12 over 12 and you will have 25,000 shares outstanding. But that's not what happened. At some point in March, we issued new shares. So we can do that. Okay. Now, something happened in March and now we're gonna go from March all the way till August. So March to August is our second period. What happened from March till August? Well, in March, we issued 50,000 new shares. 50,000 new shares. It means from March till August, we had 25 and we issued 50. How many do we have now? We should have 75,000 shares. Now, from March till August, we have 75,000 shares. What fraction that of a year? That's March, April, May, June and July. That's 512 of a year. We'll take 75,000 times 512 and we'll get weighted average 31,250. So basically, we are done up until August 1st. On August 1st, this is the second period from August 1st till November. From August 1st till November. What happened is the company purchased back 28,000 shares. It means we had 75 and we're gonna take away 28,000 shares. It means we had 47,000 shares and for how long did we have this? We had this for August, for August, September and October. That's 312 of a year. 47,000 times 312. That's gonna give us 11,750. Then the next thing is November 1st. On November 1st, we issued 40,000 shares. We had 47,000. Then we issued 40,000. How many we should have? We should have from November 1st till December 31st, 87,000. 87,000 shares and that's November and December. That's 212 times 212. That's gonna give us 14,500 weighted average. We add up all the weighted average at up to 61,667. Remember always to remember that add the numerator and they should add up to 12. Okay, because we have 12 months in a year. So we solved this problem and I ignore the corporation issued 20,000 stock dividend on May 1st. Okay? Why? Because I'm gonna solve the problem now assuming the stock dividend. So first I want to make sure you're comfortable with this much. Okay? Now again, earnings per share, I have it heavily covered in my intermediate accounting. So make sure you go there because this is only part of EPS, weighted average per share is a small part of a topic called earnings per share. Okay? Now let's now go back to the problem and keep the original problem. Now what we did is the corporation issued 20% stock dividend on May 1st. So let's see what would change. So when you're reading this problem, you know that everything that happened before May 1st will have to increase it by 20%. So let's go back, same information, same time period, 1, 1, 3, 1. We had we had 2,500 shares, but those 2,500 shares were subject to a stock dividend. So we have to restate the 25,000. What does it mean restate? It means we have to increase them by 20%. So we're going to take 25,000 times 1.2. Why 1.2? Because you want the 25,000 and add to it 20%. If you only multiply it by 20%, then you have to add the answer to the 25,000. We multiply it by the restatement of 1.2. Why 1.2? Because you want the original 25,000 plus the 0.2. Otherwise you have to do 2, you know, multiply it by 0.2, then add the 25,000. The fraction of a year is 212. The weighted average is 5,000 shares. So simply put, you'll take 25,000 shares times 1.2 times 212. So simply put, let me do it on a calculator here. So first, 25,000 shares, 25,000, that's one second please. So we have 25,000 shares times 1.2 restated. That's technically, we're started with 30,000 times 212. Now 212, I don't know how to do the parentheses here. So we have 30,000. So 212, that's 2 divided by 12. That's the fraction times 30,000 equal to 5,000. So this is how we got the weighted average. Now why were these shares multiplied by 1.2? Because anything that existed before May 1st, you have to restate it at 1.2. So we did the first one. What happened next? What happened next is from March 1st till August 31st. Remember, we issued an additional 50,000. It means 50,000 plus 25. We had 75,000. Again, there's 75,000. Now you would say, well, why? Because it existed as of March 1st. And May 1st comes after March 1st. Therefore, this group of stocks, the 75,000 is subject to restatement of 1.2. 1.2 times 75,000 times 512. So the weighted average is 37,500. Now, here's how you have to look at this. Here's how you have to look at this. Technically, shares outstanding were 75,000 as of August 1st. That's before any stock dividend. But really, the shares outstanding after the stock dividend is 75,000 times 1.2. What does that mean? It means when you're going in your computation for the next level, you will take 75,000 times 1.2. So you had not technically, you had 90,000 shares as of subject to the 20% stock dividend. You had 90,000 shares. Now, what happened on August, the company bought back 28,000. So you will say 90,000 minus 28,000. And that's going to give us 62,000. Now, this 62,000 shares are adjusted for the dividend. Why? Because I took 90,000 minus 28,000. And those were outstanding for 312 of the year, which is equivalent to 15,500. Then the company issued 40,000 new shares. 40,000 is added back to the 62. It means I have 100 and 2,000. And that's for two months. And that's the weighted average. And that's the total 75,000. So simply put, you have to be careful. Any stock dividend or any stock split. I mean, I doubt that they're going to give you dividend and split. Although on my YouTube, on my website, I do both dividend and split because in my classroom, you're responsible for both. On the CPA exam, I highly doubt it. I mean, they could, but you have to be ready. But at least now you know how to do, how to compute the weighted average number of shares. Because this is going to give you, with this, you'll compute the earnings per share, the EPS. But they might just ask you to compute the weighted average number of shares. So make sure you know how to deal with restatement. Remember, the restatement takes place. So if we're talking May 1st, anything before May 1st is subject to that restatement. So we restate all the shares as of the beginning of the year. Okay. If we had a stock dividend, we go back and restate it as well. As always, I'm going to remind you to go to my website, farhatlectures.com. If you're interested in learning more about this topic and get ready for your CPA exam, look, you're going to learn one time, you're going to study once for your CPA exam. It's a lifetime investment. Don't under, don't under change yourself. Don't, it's, my subscription is really nominal, but it's going to help you tremendously. It might add those 10 to 15 points that's going to put you at peace to go, to go pass the exam, put it behind you, focus on your career and own your future. Good luck and study hard.