Question

On January 31, 2004, Pack, Inc. split its common stock 2 for 1, and Young, Inc. issued a 5% stock dividend. Both companies issued their December 31, 2003, financial statements on March 1, 2004.Should Pack's 2003 earnings per share (EPS) take into consideration the stock split, and should Young's 2003 EPS take into consideration the stock dividend?Pack's 2003 EPS Young's 2003 EPSa) Yes Nob) No Noc) Yes Yesd) No Yes

Answer 1

C) Yes Yes

Step-by-step explanation:

The earnings per share (EPS) ratio serves as an indicator of not only present corporate earnings, but also future earnings. Since the stock split and the stock dividend will cause the number of stocks to increase, and will affect the future EPS.

This are planned events, they do not just happen because on on some morning the CEO of a corporation decided to do it, and they are very significant to shareholders. Therefore this events should be included in the current EPS computation even though they did not occur as of the balance sheet date.

Also, shareholders will not receive the balance at 7 AM on January 1, there are always adjustments to be made. So shareholders would reasonably expect that financial statements include all the relevant and current information.