Question 1

Explain how the dividends on non-cumulative preferred shares are adjusted in the EPS calculation. What is the underlying logic for this adjustment?

Accepted Answer

For non-cumulative preferred shares, deduct the dividends declared (whether paid or not)without considering the stated entitlement.
The logic underlying these requirements is rooted in the matching concept. The company is not required to pay non-cumulative preferred dividends unless the board of directors declares them. Accordingly, it is proper to deduct dividends from net income only if they have been declared.
Also, EPS is based on profit or loss for the period, rather than cash flow; accordingly, we deduct dividends in the period to which they relate rather than when they are paid.

Question 2

Which statement is correct?

Accepted Answer

A) When convertible securities are redeemed during the year, the income effect and share effect are pro-rated for the diluted EPS calculation. 
B) When convertible securities are issued during the year, the income effect and share effect are not pro-rated for the diluted EPS calculation. 
C) When convertible securities are issued at the beginning of the year, the income effect and share effect are pro-rated for the diluted EPS calculation. 
D) When the right to convert convertible securities expires during the year, the income effect and share effect are not pro-rated for the diluted EPS calculation. 
A) When convertible securities are redeemed during the year, the income effect and share effect are pro-rated for the diluted EPS calculation. 
B) When convertible securities are issued during the year, the income effect and share effect are not pro-rated for the diluted EPS calculation. 
C) When convertible securities are issued at the beginning of the year, the income effect and share effect are pro-rated for the diluted EPS calculation. 
D) When the right to convert convertible securities expires during the year, the income effect and share effect are not pro-rated for the diluted EPS calculation. A

Question 3

Which of the following is correct about the difference between basic earnings per share (EPS)and diluted earnings per share?

Accepted Answer

A) Basic EPS uses total common shares outstanding, whereas diluted EPS uses the weighted-average number of common shares. 
B) Basic EPS is not a required disclosure, whereas diluted EPS is required disclosure. 
C) Basic EPS is not adjusted for the potential dilutive effects of complex financial structures, whereas diluted EPS is adjusted. 
D) Basic EPS uses comprehensive income in its calculation, whereas diluted EPS does not. 
A) Basic EPS uses total common shares outstanding, whereas diluted EPS uses the weighted-average number of common shares. 
B) Basic EPS is not a required disclosure, whereas diluted EPS is required disclosure. 
C) Basic EPS is not adjusted for the potential dilutive effects of complex financial structures, whereas diluted EPS is adjusted. 
D) Basic EPS uses comprehensive income in its calculation, whereas diluted EPS does not. C

Question 4

Since, the objective of reporting diluted EPS is to provide the lowest possible EPS figure, we include all dilutive POS but exclude any antidilutive POS. What are the four steps in the process to separate dilutive from antidilutive POS and to calculate diluted EPS?

Accepted Answer

1. Identify all potential ordinary share

Question 5

Which statement is correct?

Accepted Answer

A) Share issuances decrease the EPS numerator. 
B) Stock splits have the same effect on EPS as share issuances. 
C) Share issuances increase number of shares. 
D) Share issuances decrease the EPS denominator. 
A) Share issuances decrease the EPS numerator. 
B) Stock splits have the same effect on EPS as share issuances. 
C) Share issuances increase number of shares. 
D) Share issuances decrease the EPS denominator.

Question 6

Micky and Donald Corp. was founded on January 1, 2021. At that time it issued 120,000 ordinary shares and 20,000, $30, cumulative 5% preferred shares. Subsequent transactions affecting its shareholdings follow.   Required:
a. What was Micky's weighted average number of ordinary shares outstanding in 2022?
b. What was Micky's basic EPS in 2022?

Accepted Answer

a. @#IMG-DLM& Supporting comments and computations

Question 7

For the year ended December 31, 2021, Harvest Productions Inc. earned $4,000,000. Outstanding preferred shares included $400,000 in 3% cumulative preferred shares issued on January 1, 2020 and $500,000 in 2% non-cumulative preferred shares issued on January 1, 2021. Dividends on the cumulative preferred shares were not declared in 2020. On December 15, 2021, Harvest declared $10,000 in dividends on the non-cumulative preferred shares, payable on January 15, 2022. Dividends on the cumulative preferred shares are neither declared nor paid.
Required:
Determine the net income available to ordinary shareholders for the year ended December 31, 2021.

Accepted Answer

@#IMG-DLM& The yearly dividend entitlement on the

Question 8

Which statement is correct about the "share effect" on EPS?

Accepted Answer

A) This is the incremental before-tax income available to ordinary shareholders. 
B) This is the incremental after-tax income available to ordinary shareholders. 
C) This is the incremental number of ordinary shares outstanding before conversion. 
D) This is the incremental number of ordinary shares outstanding after conversion. 
A) This is the incremental before-tax income available to ordinary shareholders. 
B) This is the incremental after-tax income available to ordinary shareholders. 
C) This is the incremental number of ordinary shares outstanding before conversion. 
D) This is the incremental number of ordinary shares outstanding after conversion.

Question 9

Calculate the incremental EPS for the following instrument: Convertible bonds outstanding, yield of 6% and coupon rate of 6%
$3,500,000
Issue date
January 1, 2021
Maturity date
December 31, 2028
Conversion rate for each $1,000 bond
40 ordinary shares
Income tax rate
30%

Accepted Answer

A) 1.05 
B) 1.88 
C) 40,000 
D) 3.15 
A) 1.05 
B) 1.88 
C) 40,000 
D) 3.15

Question 10

Which statement is correct regarding a company which buys call options on its own shares from an outside company?

Accepted Answer

A) Issued options are always antidilutive. 
B) Issued options are always dilutive. 
C) Purchased options are always antidilutive. 
D) Purchased options are always dilutive. 
A) Issued options are always antidilutive. 
B) Issued options are always dilutive. 
C) Purchased options are always antidilutive. 
D) Purchased options are always dilutive.

Question 11

Which statement is correct?

Accepted Answer

A) When convertible securities are redeemed during the year, the income effect and share effect are not pro-rated for the diluted EPS calculation. 
B) When convertible securities are issued during the year, the income effect and share effect are pro-rated for the diluted EPS calculation. 
C) When convertible securities are issued at the beginning of the year, the income effect and share effect are pro-rated for the diluted EPS calculation. 
D) When the right to convert convertible securities expires during the year, the income effect and share effect are not pro-rated for the diluted EPS calculation. 
A) When convertible securities are redeemed during the year, the income effect and share effect are not pro-rated for the diluted EPS calculation. 
B) When convertible securities are issued during the year, the income effect and share effect are pro-rated for the diluted EPS calculation. 
C) When convertible securities are issued at the beginning of the year, the income effect and share effect are pro-rated for the diluted EPS calculation. 
D) When the right to convert convertible securities expires during the year, the income effect and share effect are not pro-rated for the diluted EPS calculation.

Question 12

Hamm Corporation had 200,000 ordinary shares outstanding on January 1, 2021. On April 1, 2021, Hamm issued an additional 120,000 shares. On July 1, 2021, Hamm repurchased 20,000 ordinary shares and cancelled them. On October 1, 2021, Hamm issued an additional 50,000 ordinary shares.
Required:
a. What was the weighted average number of ordinary shares outstanding in 2021?
b. Assume that on July 1, 2021 Hamm repurchased the shares and held them as treasury shares. Will the weighted average number of ordinary shares outstanding in 2019 change from the amount in part a? Why or why not?

Accepted Answer

a. @#IMG-DLM& b. The weighted average number of or

Question 13

Which statement is correct about earnings per share (EPS)?

Accepted Answer

A) EPS does not provide decision-useful information to investors. 
B) EPS represents the ordinary share's market value. 
C) EPS represents the company's market value. 
D) EPS can be used to predict future earnings by analysts. 
A) EPS does not provide decision-useful information to investors. 
B) EPS represents the ordinary share's market value. 
C) EPS represents the company's market value. 
D) EPS can be used to predict future earnings by analysts.

Question 14

For the year ended December 31, 2020, Jovial Productions Inc. earned $13,000,000. Outstanding preferred shares included $1,500,000 in 9% cumulative preferred shares issued on January 1, 2017 and 32,000 $160 non-cumulative preferred shares issued on January 1, 2019 that are each entitled to dividends of $7 per annum. Dividends were neither declared nor paid on either class of the preferred shares in 2018 or 2019. On December 15, 2020, the company declared and paid $140,000 of the dividends in arrears on the 9% cumulative preferred shares.
Required:
Determine the net income available to ordinary shareholders for the year ended December 31, 2020.

Accepted Answer

@#IMG-DLM& The yearly dividend entitlement on the

Question 15

Which statement is correct?

Accepted Answer

A) A simple capital structure includes potentially dilutive securities. 
B) A simple capital structure excludes potentially dilutive securities. 
C) EPS applies only to a company with a simple capital structure. 
D) A company with a simple capital structure does not need to calculate EPS. 
A) A simple capital structure includes potentially dilutive securities. 
B) A simple capital structure excludes potentially dilutive securities. 
C) EPS applies only to a company with a simple capital structure. 
D) A company with a simple capital structure does not need to calculate EPS.

Question 16

Which statement is correct?

Accepted Answer

A) Out of the money stock options are the most dilutive. 
B) Convertible bonds are the most dilutive. 
C) Convertible preferred shares are the most dilutive. 
D) In the money stock options are the most dilutive. 
A) Out of the money stock options are the most dilutive. 
B) Convertible bonds are the most dilutive. 
C) Convertible preferred shares are the most dilutive. 
D) In the money stock options are the most dilutive.

Question 17

Calculate the incremental EPS for the following instrument: Convertible bonds outstanding, yield of 3% and coupon rate of 3%
$5,000,000
Issue date
January 1, 2021
Maturity date
December 31, 2028
Conversion rate for each $1,000 bond
25 ordinary shares
Income tax rate
30%

Accepted Answer

A) $0.36 
B) $0.84 
C) $40.00 
D) $105,000 
A) $0.36 
B) $0.84 
C) $40.00 
D) $105,000

Question 18

For the year ended December 31, 2020, Jovial Productions Inc. earned $13,000,000. Outstanding preferred shares included $1,500,000 in 9% cumulative preferred shares issued on January 1, 2017 and 32,000 $160 non-cumulative preferred shares issued on January 1, 2019 that are each entitled to dividends of $7 per annum. Dividends were neither declared nor paid on either class of the preferred shares in 2018 or 2019. On December 15, 2020, the company declared $150,000 dividends on the 4% cumulative preferred shares and $150,000 in dividends on the non-cumulative preferred shares, both payable on January 15, 2021.
Required:
Determine the net income available to ordinary shareholders for the year ended December 31, 2020.

Accepted Answer

@#IMG-DLM& The yearly dividend entitlement on the

Question 19

Which statement is correct?

Accepted Answer

A) Basic EPS is based on the dilutive shares outstanding at the end of the year. 
B) Basic EPS is based on the dilutive shares outstanding during the year. 
C) Basic EPS is based on the ordinary shares outstanding at during the year. 
D) Basic EPS is based on the ordinary shares outstanding at the end of the year. 
A) Basic EPS is based on the dilutive shares outstanding at the end of the year. 
B) Basic EPS is based on the dilutive shares outstanding during the year. 
C) Basic EPS is based on the ordinary shares outstanding at during the year. 
D) Basic EPS is based on the ordinary shares outstanding at the end of the year.

Question 20

What EPS information disclosure is required from private companies that choose to apply international standards?

Accepted Answer

For private companies that choose to app

Explain how the dividends on non-cumulative preferred shares are adjusted in the EPS calculation. What is the underlying logic for this adjustment?

Which statement is correct?

Which of the following is correct about the difference between basic earnings per share (EPS)and diluted earnings per share?

Since, the objective of reporting diluted EPS is to provide the lowest possible EPS figure, we include all dilutive POS but exclude any antidilutive POS. What are the four steps in the process to separate dilutive from antidilutive POS and to calculate diluted EPS?

Which statement is correct?

Which statement is correct about the "share effect" on EPS?

Calculate the incremental EPS for the following instrument: Convertible bonds outstanding, yield of 6% and coupon rate of 6% $3,500,000 Issue date January 1, 2021 Maturity date December 31, 2028 Conversion rate for each $1,000 bond 40 ordinary shares Income tax rate 30%

Which statement is correct regarding a company which buys call options on its own shares from an outside company?

Which statement is correct?

Which statement is correct about earnings per share (EPS)?

Which statement is correct?

Which statement is correct?

Calculate the incremental EPS for the following instrument: Convertible bonds outstanding, yield of 3% and coupon rate of 3% $5,000,000 Issue date January 1, 2021 Maturity date December 31, 2028 Conversion rate for each $1,000 bond 25 ordinary shares Income tax rate 30%

Which statement is correct?

What EPS information disclosure is required from private companies that choose to apply international standards?

Current Liabilities and Contingencies

Non-Current Financial Liabilities

Equities

Complex Financial Instruments

Pensions and Other Employee Future Benefits

Accounting for Leases

Accounting for Income Taxes

Accounting Changes

Statement of Cash Flows

Filters

Exam 5: Earnings Per Share

Explain how the dividends on non-cumulative preferred shares are adjusted in the EPS calculation. What is the underlying logic for this adjustment?

Which statement is correct?

Which of the following is correct about the difference between basic earnings per share (EPS)and diluted earnings per share?

Since, the objective of reporting diluted EPS is to provide the lowest possible EPS figure, we include all dilutive POS but exclude any antidilutive POS. What are the four steps in the process to separate dilutive from antidilutive POS and to calculate diluted EPS?

Which statement is correct?

Which statement is correct about the "share effect" on EPS?

Calculate the incremental EPS for the following instrument: Convertible bonds outstanding, yield of 6% and coupon rate of 6% $3,500,000 Issue date January 1, 2021 Maturity date December 31, 2028 Conversion rate for each $1,000 bond 40 ordinary shares Income tax rate 30%

Which statement is correct regarding a company which buys call options on its own shares from an outside company?

Which statement is correct?

Which statement is correct about earnings per share (EPS)?

Which statement is correct?

Which statement is correct?

Calculate the incremental EPS for the following instrument: Convertible bonds outstanding, yield of 3% and coupon rate of 3% $5,000,000 Issue date January 1, 2021 Maturity date December 31, 2028 Conversion rate for each $1,000 bond 25 ordinary shares Income tax rate 30%

Which statement is correct?

What EPS information disclosure is required from private companies that choose to apply international standards?

Current Liabilities and Contingencies

Non-Current Financial Liabilities

Equities

Complex Financial Instruments

Pensions and Other Employee Future Benefits

Accounting for Leases

Accounting for Income Taxes

Accounting Changes

Statement of Cash Flows

Filters