CMA Study Group

  • 1.  CMA Part 2 Question

    Posted 10-21-2021 04:02 PM

    Fellow candidates, i have problem with the below mentioned question. Could you please suggest the solution to this question and also explain how to tackle this type of question...

    Roy company had 120,000 common shares and 100,000 preferred shares outstanding at the close of the prior year. During the current year Roy repurchased 12,000 common shares on March 1, sold 30,000 common shares on June 1, and sold an additional 60,000 common shares on November 1. No change in preferred shares outstanding occurred during the year. The number of shares of stock outstanding to be used in the calculation of basic earnings per share at the end of the current year is
    a. 100,000.
    b. 137,500.
    c. 198,000.
    d. 298,000.

  • 2.  RE: CMA Part 2 Question

    Posted 10-22-2021 01:29 AM

    Adeyemi Bello
    Applecart Logistics Inc.
    Edmonton AB

  • 3.  RE: CMA Part 2 Question

    Posted 10-23-2021 02:36 AM
    I thinks the reply would be 137,500 shares Jan-Feb-120,000x2/12=20,000 sh Mar-May - (120,000-12000)x3/12=27,000sh June-Oct-(108,000+30,000)x5/12=57,500sh Nov-Dec-(138,000+60,000)x2/12=33,000sh Total-137,500sh Note: Have reduce 12,000 as they are repurchased shares and would go to treasury and won't be part of common o/s used for EPS.

    Vijayganapathy No Last Name
    Solas Marine Services Co LLC
    Chennai TN

  • 4.  RE: CMA Part 2 Question

    Posted 10-22-2021 04:43 AM
    Hello Muhammad,

    When you are calculating the number of shares for "EPS", you must consider the weighted-average, because it reflects the changes of numbers throughout the year.

    If we don't weight-average them, the share number could be distorted. For example, if we simply take the ending balance, instead of weighted-average shares, a company could be able to repurchase shares at very end of the period to make EPS look higher. Thus, adjustment by weighted-average is critical.

    In a calculation for the weighted-average shares, you must understand the rules, though it's quite simple.
    Rule (1); For stock dividends or stock split, you treat it as it occurred in the beginning of the period.
    Rule (2); For others like repurchases of treasury stocks or additional issuance, you must take into consideration how much portion of the year it have been outstanding.

    So it'll be as below;
    1/1 Beginning balance 120,000 shares
    3/1 Repurchase (rule 2): (12,000) / 12months x 10months = (10,000)
    6/1 Sold/issued (rule 2): 30,000 / 12months x 7months = 17,500
    11/1 issued shares (rule 2): 60,000 / 12months x 2months = 10,000
    Weighted-average shares outstanding = 137,500

    Hope this helps.

    Good luck.

  • 5.  RE: CMA Part 2 Question

    Posted 10-24-2021 12:47 AM
    Hello guys,
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    Basam Iqbal