Exam 20: Earnings Per Share

Earnings per share is the most often quoted financial statistic in the business media.

The denominator for basic EPS is based on the weighted-average number of common shares outstanding during the year.

When computing basic EPS, the numerator includes net income minus the ________.

Sumner Industries began the year with 140,000 shares of common stock and 10,000 shares of 6%, $100 par value, cumulative, nonconvertible preferred stock. On April 1 it declared a 10% stock dividend on common shares. On June 1, it purchased 15,000 shares of treasury stock. On December 1, Sumner declared a 2 for 1 stock split. Net income for the year was $570,000. Compute weighted average shares of common stock for the year and basic EPS. Instructions: Write the EPS formula. Show all computations used in your solution.

Standard setters require that firms provide basic EPS in the Notes to Financial Statements for at least ten years.

The denominator of the basic EPS equation contains the ________.

How does IFRS differ from GAAP with diluted earnings per share?

How can managers manipulate EPS?

When applying the if-converted assumption for potentially dilutive securities, conversions are assumed to occur at the ________.

George Manufacturing had net income of $275,000 and declared preferred dividends of $20,000 during the current year. George began the year with 16,000 common shares outstanding. It issued 60,000 shares on June 30 and repurchased 12,000 of the newly issued shares on November 1. Compute George's weighted-average common shares outstanding for the year.

Harvey Inc. reported net earnings of $700,000 for the year. Harvey has 200,000 shares of common stock outstanding all year. Two years ago, the company granted 20,000 stock options that allow employees to purchase 20,000 shares for $15 each. The company stock has averaged $20 in the market during the year. Compute the basic and diluted EPS.

What is the protocol to determine if multiple potentially dilutive securities are actually dilutive or antidilutive?

Any events that would have a material impact on the denominator of the EPS calculation that occur after the close of the period would require disclosure in the notes to the financial statements.

When a stock split or stock dividend occurs during the year, it is retroactive to the beginning of the year, if the common shares were outstanding as of the beginning of the year.

Basic EPS must be computed before diluted earnings per share can be properly computed.

When computing diluted EPS, both the numerator and denominator are affected by ________.

Interurban Company began operations on the first day of the year. On that day they issued 90,000 shares. On March 1 they issued 60,000 shares and on July 1, another 20,000 shares. On December 1, Interurban repurchased 6000 shares of outstanding shares. Compute basic EPS for the first year of operation if net income was $100,000. (Round number of shares to the nearest whole number, and your final answer to the nearest cent.)

Basic EPS measures the earnings available to common shareholders based on the weighted-average number of common shares outstanding during the period.

When there are multiple dilutive securities in a firm, the antidilution test for the sequence should be from ________.

Terrell Foods reported $680,000 in net income (not considering interest expense) and its weighted-average shares outstanding for the year is 100,000 shares. In prior years it sold $1,500,000 of 8% long-term convertible bonds at par which are still outstanding at the start of the year. The bonds are convertible into 40,000 shares of common stock. The tax rate for all years is 40%. Bondholders convert the bonds on July 1 of the current year. If Terrell has no other potentially dilutive securities and no preferred stock, what is the denominator for basic and diluted EPS?