Exam 21: Earnings Per Share

Smith Instruments reported $6,000,000 in net income for the current year.The company had $500,000 of 10% cumulative,non-convertible preferred stock outstanding all year,and issued,$5,000,000 of 6% convertible bonds issued on June 1.Each $1,000 bond is convertible into 40 shares of common stock.200,000 common shares were outstanding all year.Determine the denominator for both basic and diluted EPS when the tax rate is 40%.

Describe how users utilize the EPS ratios.

Managers can be motivated to manage EPS when ________.

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

When options and warrants are in the money,they will be dilutive.

Baker Instruments reported $6,000,000 in net income for the current year.The company had $500,000 of 10% cumulative,non-convertible preferred stock outstanding all year,and issued,$5,000,000 of 6% convertible bonds issued on June 1.Determine the numerator for both basic and diluted EPS when the tax rate is 40%.

If convertible debt is issued during the year,the total of interest expense incurred must be added to the numerator of the diluted EPS calculation.

Gray Corporation reported $200,000 in interest expense for the current year for bonds that were issued in prior years.Gray's tax rate is 40%.By what amount is the numerator of diluted EPS positively adjusted?

The income statement requires presentation of basic and diluted earnings per share for each year presented,plus additional information to be disclosed in the notes to the financial statements for all years presented.

Retroactive application of stock splits and stock dividends makes EPS comparable for prior and current periods of one entity.

Carrolton,Inc.has four potentially dilutive securities.Computation of the antidilution sequencing recorded the following: What is the correct order of entry into the EPS computation?

Edwards Corporation has three potentially dilutive securities.Computation of the antidilution sequencing recorded the following: What is the correct order of entry into the EPS computation?

Antidilutive securities are excluded from the diluted EPS equation.

Realty1 has 40,000 outstanding stock options.Its net income for the year is $250,000.Each option allows the holder to purchase a share of stock for $14.The average market value of the shares for the year was $17.What is the incremental income per common share?

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.

A security is antidilutive if decreases the diluted EPS below basic EPS.

When applying the if-converted assumption,the company assumes conversion at the beginning of the year for a convertible bond or convertible preferred stock outstanding at the beginning of the year.

Freewheelers,Inc.has four potentially dilutive securities.Net income for the year is $5,600,000 and the weighted average common shares outstanding is 1,000,000 shares.Computation of the antidilution sequencing recorded the following: Required: Write the basic equation for EPS and compute basic EPS.Determine the order of entry into the EPS computation.Compute final diluted EPS and show all computations to determine your final answer.

Edmond Biometrics experienced net income of $500,000 for both last year and the current year.The shares outstanding for the prior year was 100,000 shares for the whole year.On December 1 of the current year,Edmond declared a two for one stocksplit.There were no other stock transactions in either year.Compute the EPS that would be shown on a comparative income statement for Years 1 and 2.

When applying the if-converted assumption,the company assumes conversion at the beginning of the year when a convertible bond or convertible preferred stock is issued during the year.