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?
A) The stock dividend should be weighted by the length of time that the additional number of shares are outstanding during the period.
B) The stock dividend should be included in the weighted-average number of common shares outstanding only if the additional shares result in a decrease of 3 percent or more in earnings per share.
C) The stock dividend should be weighted as if the additional shares were issued at the beginning of the year.
D) The stock dividend should be ignored since no additional capital was received.

Question

Quizplus · Accepted Answer

The correct treatment of a stock dividend is to weigh the additional shares as if they were issued at the beginning of the year, regardless of when they are actually issued during the year. This is because the stock dividend represents an increase in the number of shares outstanding, which affects the calculation of both earnings per share and the weighted-average number of shares outstanding. By assuming that the shares were issued at the beginning of the year, the weighted-average number of shares outstanding is adjusted for the entire period, and any resulting dilution in earnings per share is properly reflected.

What Is the Correct Treatment of a Stock Dividend Issued