Exam 21: Earnings Per Share

Ozarka Products reported $9,500,000 in net income for the current year.The company had $5,000,000 of 7% cumulative,preferred stock outstanding all year,along with,$10,000,000 of 6% bonds.Each bond had 4 detachable stock warrants and each warrant allowed the warrant holders to buy a share of stock for $60.The average share price for the year was $80.Common shares outstanding at the beginning of the year was 4,000,000,but on June 15,the company declared a a 10% stock dividend.Compute both basic and diluted EPS when the tax rate is 40%. Instructions: Write the EPS formula.Show all computations used in your solution.

The retroactive assumption for stock dividends and splits helps financial statement users to ________.

Income available to common shareholders is net income minus dividends paid during the year to preferred shareholders.

Ace Corporation has 10,000 shares of $100,6%,convertible preferred shares outstanding for the whole year.Each preferred share is convertible into 4 shares of common stock.What is the incremental income per common share?

Convertible securities in a capital structure require the adjustment of both the numerator and denominator of the EPS formula.

Hornet Motors reported $535,000 net income for the current year.Beginning common shares outstanding were 120,000.Hudson also had 10,000,6% nonconvertible,cumulative,$100 par value preferred shares outstanding for the entire year.No cash dividends were declared but Hornet did declare and distribute a 10% stock dividend on common shares on July 1.Compute basic earnings per share.

The EPS denominator for basic earnings per share includes all outstanding common shares at the end of the year.

A simple capital structure contains no potentially dilutive securities.

Austin Products reported $350,000 net income for the year with 100,000 outstanding common shares all year.Austin issued 50,000 shares of $100,8% convertible preferred shares on March 1.Each preferred share is convertible into 10 shares of common stock.Determine the numerator for both basic and diluted EPS.

Greenwell Coffee Company began operations on the first day of the year.On that day they issued 10,000 shares.On March 1 they issued 20,000 shares and on July 1,another 30,000 shares.On December 1,Greenwell repurchased 5,000 shares of outstanding shares.Compute the weighted-average shares of stock for the first year of operation.

When is a potentially dilutive antidilutive?

When must a firm use the treasury stock method for earnings per share calculations?

The retroactive assumption for stock splits and stock dividends assumes that all splits and stock dividends occur at the beginning of the year and is retroactive to ________.

Lewis,Inc.began the year with 300,000 shares of common stock and 25,000 shares of 6%,$100 par value,cumulative,convertible preferred stock.Each share of preferred stock is convertible into 4 shares of common stock.On June 30,it purchased 10,000 shares of treasury stock.On November 1,Lewis declared a 2 for 1 stock split.Net income for the year was $850,000.Compute weighted average shares of common stock for the year,basic EPS,and diluted EPS. Instructions: Write the EPS formula.Show all computations used in your solution.

Why does the numerator of the basic EPS formula subtract the amount of preferred dividends for some preferred shares and not for others?

A company with convertible bonds outstanding will assume hypothetical conversion at the earliest point of the year to compute EPS.The numerator is ________.

When a company has a net loss from continuing operations,it should include ________.

When computing EPS,it does not matter if convertible issues occur before the beginning or during the current fiscal year.

Companies are required to provide basic EPS on the income statement for each period for which they provide financial information.

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 weighted-average common shares outstanding for the year.