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Exam 20: Earnings Per Share

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Question 61

Multiple Choice

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Earnings per share is computed on the basis of:

A) The number of common and preferred shares outstanding at the end of the year.
B) A weighted average of the number of common shares outstanding during the year.
C) A weighted average of the number of preferred and common shares outstanding during the year.
D) The number of common shares outstanding at the end of the year.

E) All of the above
F) A) and D)

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Question 62

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Reporting earnings per share for public companies is optional; however, its presentation is strongly recommended.

A) True
B) False

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Question 63

Multiple Choice

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When computing diluted earnings per share, convertible securities are:

When computing the weighted average number of shares outstanding, an actual conversion of convertible preferred shares is assumed to have occurred on the first day of the year, regardless of when it was converted.

The balance sheet at the beginning of the current year for GHI Inc.reflected the following: No transactions affecting the denominator of EPS occurred during the year.Assume the preferred shares are dilutive.The number of potential common shares to be included in th denominator of fully diluted EPS is:

Calculate the weighted average shares for EPS purposes if a firm started the year with 100 common shares outstanding, reissued 80 treasury shares March 1, split 2 for 1 on April 1, purchased 50 shares for the treasury on July 1, issued a 40% stock dividend on November 1, and issued 120 shares under a stock option plan on December 1.

The annual dividend on nonconvertible cumulative preferred shares is $10,000.At the beginning of the current year, there were 3 years of dividends in arrears.During the current year, $38,000 of dividends on the preferred shares were declared, and $35,000 were paid.What amount of dividends on preferred shares will be subtracted from earnings when computing diluted EPS for the current year?

Briefly describe when a company would be required to restate its EPS figures.

You calculate basic EPS to be $15.87 and diluted EPS to be $16.65.From a disclosure point, what needs to be disclosed?

During Year 2, ABC Inc.reported net income of $2,800,000.The company had no preferred shares outstanding.At the start of Year 2, the company had 100,000 stock options outstanding, half of which were exercised on April 1st, Year 2.The exercise price of the option was $10 per share, and the average market price was $12.50 per share. On May 1, Year 2, the company issued $2,500,000 worth of 10% debentures, 60% of which were converted into 60,000 common shares on July 1, Year 2.The bonds that were not converted were convertible into 40,000 common shares.The company had 1,000,000 shares outstanding at the start o Year 2 and is subject to a tax rate of 25%. Required: Compute the company's basic and fully diluted EPS figures for year 2.

At December 31, 2013, BCD had 700 common shares outstanding.On September 1, 2014, an additional 300 common shares were issued.In addition, BCD had $20,000 of 8 percent, convertible bonds outstanding December 31, 2013, which are convertible into 400 common shares.No bonds were converted into common shares in 2014.Net income for the year ended December 31, 2014, was $6,000.Assuming the income tax rate was 50 percent, what should be the basic earnings per share for the year ended December 31, 2014?

Which of the following statements is correct?

Choose the correct statement concerning EPS.

A preferred dividend claim should be subtracted from income to compute basic EPS if the preferred shares are:

At December 31, 2014 and 2013, GHI had 90 common shares and 20 convertible preferred shares outstanding, in addition to 9% convertible bonds payable in the face amount of $4,000.During 2014, GHI paid dividends of $2.50 per share on the preferred shares (the annual requirement) .The preferred shares are convertible into 20 common shares.The 9% convertible bonds are convertible into 30 common shares.Net income for 2014 was $1,940.Assume an income tax rate of 40%.The earnings per share amounts would be: (Rounded to the nearest cent)

A company with a simple capital structure would include which of the following in the computation of earnings per share?

Option adjustments are based on the treasury stock method.

On January 1, 2014, WXY had stock warrants outstanding to purchase 6,000 shares at an option price of $10.The common shares' market price was $15 the entire year.The firm has 200,000 common shares outstanding at the end of the year.The effect of the warrants on EPS is to:

Basic EPS & Fully diluted EPS are both historical amounts.

At December 31, 2013, GHI had 400 common shares outstanding.On October 1, 2014, an additional 100 common shares were issued.In addition, GHI had $40,000 of 8 percent, convertible bonds outstanding at December 31, 2013, which are convertible into 225 common shares.No bonds were converted into common shares in 2014.Net income for the year ended December 31, 2014, was $14,000.Assuming the income tax rate was 50 percent, the basic earnings per share for the year ended December 31, 2014, should be: (Rounded to the nearest cent)