How do you calculate the weighted average number of shares outstanding and earnings per share (EPS)? This video is a step-by-step walkthrough of the weighted average share calculation and EPS — handling stock issuances, stock dividends, stock splits, and treasury stock — taught by Professor Farhat for CPA candidates and accounting students in intermediate accounting and the FAR section.

Try it free at farhatlectures.com — interactive exercises, lectures, simulations, cases, multiple choice, and AI tools for CPA, CMA, EA and students.

You will learn to weight each share change by the portion of the year it was outstanding, apply stock dividends and stock splits retroactively, and then compute EPS with non-cumulative and cumulative preferred stock, as well as separating continuing operations from discontinued operations.

Video Timeline & Key Concepts:
0:00 — Introduction
1:00 — Chronological analysis of share transactions
4:26 — Weighting shares and retroactive splits and dividends
10:31 — Calculating EPS under different scenarios
10:41 — Non-cumulative preferred stock
11:37 — Cumulative preferred stock
13:56 — Continuing versus discontinued operations

Frequently Asked Questions:

How is the weighted average number of shares outstanding calculated?

Each share balance is multiplied by the fraction of the year it was outstanding, and the results are added together to give the weighted average used in the EPS denominator.

How are stock dividends and stock splits treated in the EPS calculation?

Stock dividends and stock splits are applied retroactively to the beginning of the period, so all earlier share balances are restated as if the additional shares had always been outstanding.

How does preferred stock affect the EPS numerator?

For cumulative preferred stock, the annual preferred dividend is subtracted from net income whether or not it is declared, while for non-cumulative preferred stock it is subtracted only if declared.

Why is EPS from continuing operations reported separately?

Separating continuing operations from discontinued operations gives investors a clearer view of sustainable performance, so EPS is disclosed for each component.

Does treasury stock reduce the share count?

Yes. Reacquiring treasury stock reduces the number of shares outstanding from the reacquisition date, weighted for the remaining portion of the year.

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