Exam 21: Earnings Per Share

Stock options and warrants affect the diluted EPS calculation by changing the ________.

When computing diluted EPS,only the denominator is affected by ________.

Why should shareholders pay attention to the diluted EPS?

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

How can managers manipulate EPS?

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

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

When is a potentially dilutive security dilutive?

A company with convertible bonds outstanding will need to adjust the denominator of the EPS equation.The adjustment will consist of the ________.

Kansas Instruments reported $7,000,000 in net income for the current year.The company had $7,000,000 of 9% cumulative,non-convertible preferred stock outstanding all year,and issued,$5,000,000 of 7% convertible bonds issued on May 1.Each bond is convertible into 40 shares of common stock.Common shares outstanding all year were 2,000,000.Compute both basic and diluted EPS when the tax rate is 40%. Instructions: Write the EPS formula.Show all computations used in your solution.

Which one of the following items is not a way for management to influence EPS computations to meet target goals?

US GAAP assumes that all potential shares in diluted earnings per share computations use the treasury stock method.

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

Jenks Corp.began the year with 200,000 shares of common stock and 30,000 shares of 7%,$100 par value,cumulative,nonconvertible preferred stock.On March 1 it declared a 5% stock dividend on common shares.On June 30,it purchased 10,000 shares of treasury stock.On October 1,Jenks declared a 2 for 1 stock split.Net income for the year was $650,000.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.

Centurion,Inc.has four potentially dilutive securities.Net income for the year is $900,000 and the weighted average common shares outstanding is 600,000 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.

A complex capital would include only convertible debt and convertible preferred stock.

Potentially dilutive securities should not be included in dilutive EPS computations when net income from continuing operations is negative.

Charlotte Engineering experienced net income of $450,000 for the year.It declared $30,000 in preferred dividends on December 23.It began the year with 100,000 common shares outstanding.On July 1,Charlotte declared a 10% common stock dividend.Compute the basic EPS for the year.

Footnote disclosures for EPS is concerned only with current and prior years,such that subsequent events after the close of the year are ignored.

Describe how managers can manipulate EPS to increase they own compensation and give at least three examples.