FASB Codification Case #2Effect of New Year Stock Dividend on Prior Year EPS

Facts : For the year ended December 31, YR01 Target Inc. had net income of $10,000. At this date,Target had 1,000 common shares issued and outstanding (par value =$1 per share). The number of common shares issued and outstanding did not change during YR01. Also, Target Inc. has no outstanding convertible securities. Target Inc. issued its December 31, YR01 annual report to shareholders on February 1, YR02.On January 15, YR02 the Board of Directors declared a 10% stock dividend to be distributed on January 20, YR02. At the date of declaration the market price of the common stock was $10 per share.

Question: Does the stock dividend declared and distributed in early YR02 affect the EPS disclosure thatwill appear in the December 31, YR01 annual report?

Required: 1. Provide a brief written description of the proper treatment for the January 15, YR02 stockdividend with respect to the December 31, YR01 EPS disclosure.

2. Compute the EPS disclosure that will appear in the December 31, YR01 annual report.

3. Identify the specific paragraph of the FASB Codification which addresses this issue andsubmit a printout of this paragraph with your solution