 So let's take a look at this exercise to make sure we we know how to compute the weighted average number of shares outstanding So we have the data for this company and you might see this in a CPA simulation on the exam day or you might see this in a multiple choice I would say a problem like this you might see it in a CPA simulation Or maybe they might ask you about a piece of it For example to compute only the weighted average number of shares or to compute EPS So let's go ahead and take a look at this question and we want to make sure we know how to solve these type of questions We have net income of 2.5 million 2.5 million preferred stock. We have to be careful. We have 50,000 shares outstanding $100 power value 8% cumulative. This is important. What does that mean? It means each shareholder gets $8 per share Which is 100 times 8% they have 50,000 shares This means we have to Pay the preferred shareholders the preferred shareholders. We have to pay them $400,000 per year Okay, okay, if we if we pay the shareholders whether we pay them or not for the EPS Computation we always going to deduct this 400,000 because listen to me carefully because they told us the preferred is cumulative So now once we know it's cumulative we have to deduct because the basic earnings per share is net income minus preferred stock, which is this is the 400,000 divided by the weighted average number of shares outstanding shares Outstanding so this is the computation for EPS Now we already have we already know net income 2.5 million now We know the preferred stock dividend the preferred dividend preferred stock Dividend which is 400,000 now we need to compute the weighted average number of shares outstanding Okay, now we now we need to focus on on This data right here on this data right here This is what we are giving the first thing you want to do is to read the whole question And the reason you do so is because you might have a stock split or stock dividend So let's take a look at this Shares outstanding 1-1 at the beginning of the year 750,000 that's excellent. That's when we started Then we had that many shares until May 1st May 1st. We issued 300,000 shares. What does that mean if we should 300,000 shares? It means we added 300,000 shares Now we have 1,000,000 and 50,000 shares Okay, so we had 750 from 1, 1, 2, 5, 1 Okay Starting from 5, 1, 5, 1 which is May 1st From 5, 1 till August 1st. Sorry till August 1st. We added 300,000 shares It means from 5, 1 to 8, 1 To 8, 1 we had 1 million and 50,000 shares On 8, 1 we acquired treasury stocks 150. It means we deduct 150,000 shares and this is gonna bring us down to 900,000 shares and We had that money that many from 8, 1 2 2 Nothing nothing happened. I'm sorry. Yes, something happened on 10, 1 on 10, 1 but nothing happened after 10, 1 till to 12 31 now on 10, 1 we had the stock split so simply put the 2, 4, 1 stock split because every time we have a stock split or stock Dividend it's gonna apply to everything It's gonna apply to everything now. What do we need to do now? We need to take this information that I just kind of gave you a picture of it This is what we started with 750 till May 1st and on by May 1st we added 300,000 then we went from May 1st till August 1st, then we subtract 150. This is what we are giving here. Then we had a stock split at the end So to show you the computation for this exercise I'm gonna move to the Excel sheet and I will have all the information on the Excel sheet the same information here I want to make sure you understand this except I will make the Stock split adjustment and show you the weighted average per share. Okay, let's go ahead and move to the Excel sheet before we proceed any further. 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No credit card required Okay, let's take a look at the Excel sheet and what I have is a column for the event column for days outstanding columns for shares outstanding column for fraction of the year and either the percent of the year restatement and the weighted shares We started with if you remember the date we started from January 1st to May 1st and if you remember we had 750,000 shares when we started and That means we had those 412 of the year. What does it mean 412? We had 750,000 January, February, March and April 4 month okay May 1st it doesn't count because May it's only the first day in May Well the percentage of the year the percentage of the year is this amount the fraction of the year is 33% So we had that many shares 33% of the year. So I just like to put the percentages. I'll show you why at the end now remember Let's assume there was no let's assume there was no No stock split we will take 750 divided by 0.333 But since we had a stock split the stock split applies to everything we have to include the stock split Therefore the weighted the weighted those weighted shares are the following 750 times 33% times 2 Now if we did not have the restatement then it's 750 times 33% Now the next event went from we issued new shares on May 1st And we issued new share May 1st and nothing happened till August 1st. And remember we added 300,000 shares now We have 1 million and 50,000 why 1 million and 50 kind of show you why because we started with 750 Then on that date May 1st. We added 300,000. I did this on the power point. I'll show it to you again here And this That many shares we had that many shares from May 1st till August 1st because August 1st You're gonna find out that we purchased some shares percentage wise. That's 25% 312 is 25% and the stock Split the does apply now. We do the same thing We'll take a number shares outstanding times the fraction of the year times the restatement Now August 1st from August 1st till the end of the year something happened and we reacquired shares What does it mean? We required shares. We had 1 million and 50 then we reacquired We bought back 150,000 shares and that happens and that took place all the way till the end of the year Which is from August 1st, August, September, October, November and December. That's 512 of a month percentage wise That is 42 of the year Does the does the stock split applies sure it does because it applies as as of the beginning of the year and the shares Weighted shares is 750 now we add all the shares up 1,775,000 let me show you why Let me show you why I do the percentages because when you add the percentages When you add those percentages, they should add up to 100 percent This way you make sure you allocated the all 12 month or you count 4 plus 3 plus 5 should be 12 months Okay, but I like the percentage to make sure now I can compute my earnings per share My net income is 25 million my preferred dividend is 40,000 which is 50,000 shares times 8 dollar per share This is what I started with my income allocable to common stockholders, which is net income minus So basically I'm going to call this net income to common stockholder to common Stockholders why do I call it to common stockholders because I deducted the preferred dividend because some of it, you know The company made 25 million but 400 goes to the to the preferred what's left is 24,600,000 So the earnings per share is I will take my 24,600,000 divided by 1,775,000 the weighted average number of shares outstanding Which is this number here and I will get my EPS earnings per share I hope you you are able to follow on this question. I may work I may work in other questions where we have stock dividend and stock split But anyhow, you might see these questions on the CPA exam as a simulation Or you might see bits and pieces of it as a multiple choice For example, they may ask you only to compute the weighted average or they might give you the weighted average They might give you an income and they might give you the dividend information and you have to compute EPS So you just have to know they can ask you many questions about this problem Make sure you understand it as always I would like to remind you to visit my website for additional resources If you're studying for your CPA exam, I strongly suggest you subscribe at it. It's an investment in your career. Good luck