Question 1

When computing diluted earnings per share, convertible securities are:

Accepted Answer

A) Incorporated into diluted EPS whether they are dilutive or anti-dilutive. 
B) Incorporated into diluted EPS only if they are anti-dilutive. 
C) Incorporated into diluted EPS only if they are dilutive. 
D) Ignored for EPS purposes.

Question 2

On January 1, 2014, WXY had stock warrants outstanding to purchase 6,000 shares at an option price of $10.The common shares' market price was $15 the entire year.The firm has 200,000 common shares outstanding at the end of the year.The effect of the warrants on EPS is to:

Accepted Answer

A) Affect the diluted EPS calculation, but not the basic EPS calculation. 
B) Increase the denominator of all EPS calculations by 4,000 shares. 
C) Increase the denominator of all EPS calculations by 6,000 shares. 
D) Have no potentially dilutive effect on the EPS calculation. 
E) Increase the denominator of all EPS calculations by 2,000 shares.

Question 3

During Year 2, ABC Inc.reported net income of $2,800,000.The company had no preferred shares outstanding.At the start of Year 2, the company had 100,000 stock options outstanding, half of which were exercised on April 1st, Year 2.The exercise price of the option was $10 per share, and the average market price was $12.50 per share.
On May 1, Year 2, the company issued $2,500,000 worth of 10% debentures, 60% of which were converted into 60,000 common shares on July 1, Year 2.The bonds that were not converted were convertible into 40,000 common shares.The company had 1,000,000 shares outstanding at the start o Year 2 and is subject to a tax rate of 25%.
Required: Compute the company's basic and fully diluted EPS figures for year 2.

Accepted Answer

The answer of During Year 2, ABC Inc.reported net income...

Question 4

Which of the following statements is correct?

Accepted Answer

A) Basic EPS is a historical figure while diluted EPS is a hypothetical figure. 
B) Basic EPS is hypothetical figure while diluted EPS is a historical figure. 
C) Basic and diluted EPS are both historical figures. 
D) Basic and diluted EPS are both hypothetical figures.

Question 5

At December 31, 2014 and 2013, GHI had 90 common shares and 20 convertible preferred shares outstanding, in addition to 9% convertible bonds payable in the face amount of $4,000.During 2014, GHI paid dividends of $2.50 per share on the preferred shares (the annual requirement).The preferred shares are convertible into 20 common shares.The 9% convertible bonds are convertible into 30 common shares.Net income for 2014 was $1,940.Assume an income tax rate of 40%.The earnings per share amounts would be: (Rounded to the nearest cent)

Accepted Answer

A) Basic $21.56; diluted $15.40. 
B) Basic $21.00; diluted $15.40. 
C) Basic $21.56; diluted $15.76. 
D) Basic $21.00; diluted $15.76.

Question 6

Reporting earnings per share for public companies is optional; however, its presentation is strongly recommended.

Accepted Answer

A) True 
 B)False

Question 7

A company with a simple capital structure would include which of the following in the computation of earnings per share?

Accepted Answer

A) Dividends on nonconvertible cumulative preferred shares 
B) Dividends on common shares 
C) Convertible securities 
D) Number of shares of nonconvertible cumulative preferred shares

Question 8

The balance sheet at the beginning of the current year for GHI Inc.reflected the following:  No transactions affecting the denominator of EPS occurred during the year.Assume the preferred shares are dilutive.The number of potential common shares to be included in th denominator of fully diluted EPS is:

Accepted Answer

A) 15. 
B) 14. 
C) 13. 
D) 0) 
E) 10.

Question 9

Calculate the weighted average shares for EPS purposes if a firm started the year with 100 common
shares outstanding, reissued 80 treasury shares March 1, split 2 for 1 on April 1, purchased 50
shares for the treasury on July 1, issued a 40% stock dividend on November 1, and issued 120 shares under a stock option plan on December 1.

Accepted Answer

The answer of Calculate the weighted average shares for EPS...

Question 10

At December 31, 2013, GHI had 400 common shares outstanding.On October 1, 2014, an additional 100 common shares were issued.In addition, GHI had $40,000 of 8 percent, convertible bonds outstanding at December 31, 2013, which are convertible into 225 common shares.No bonds were converted into common shares in 2014.Net income for the year ended December 31, 2014, was $14,000.Assuming the income tax rate was 50 percent, the basic earnings per share for the year ended December 31, 2014, should be: (Rounded to the nearest cent)

Accepted Answer

A) $25.54 
B) $36.71 
C) $32.94 
D) $24.00

Question 11

Option adjustments are based on the treasury stock method.

Accepted Answer

A) True 
 B)False

Question 12

When computing the weighted average number of shares outstanding, an actual conversion of convertible preferred shares is assumed to have occurred on the first day of the year, regardless of when it was converted.

Accepted Answer

A) True 
 B)False

Question 13

The annual dividend on nonconvertible cumulative preferred shares is $10,000.At the beginning of the current year, there were 3 years of dividends in arrears.During the current year, $38,000 of dividends on the preferred shares were declared, and $35,000 were paid.What amount of dividends on preferred shares will be subtracted from earnings when computing diluted EPS for the current year?

Accepted Answer

A) $40,000 
B) $38,000 
C) $10,000 
D) $30,000 
E) $35,000

Question 14

At December 31, 2013, BCD had 700 common shares outstanding.On September 1, 2014, an additional 300 common shares were issued.In addition, BCD had $20,000 of 8 percent, convertible bonds outstanding December 31, 2013, which are convertible into 400 common shares.No bonds were converted into common shares in 2014.Net income for the year ended December 31, 2014, was $6,000.Assuming the income tax rate was 50 percent, what should be the basic earnings per share for the year ended December 31, 2014?

Accepted Answer

A) $7.50 
B) $4.33 
C) $5.67 
D) $5.00

Question 15

Choose the correct statement concerning EPS.

Accepted Answer

A) EPS can never be negative. 
B) If net income is less than zero, all potentially dilutive securities are anti-dilutive. 
C) All convertible securities must be incorporated into diluted EPS. 
D) Usually, reported EPS is the actual historical income per weighted average share outstanding during the period.

Question 16

Earnings per share is computed on the basis of:

Accepted Answer

A) The number of common and preferred shares outstanding at the end of the year. 
B) A weighted average of the number of common shares outstanding during the year. 
C) A weighted average of the number of preferred and common shares outstanding during the year. 
D) The number of common shares outstanding at the end of the year.

Question 17

Basic EPS & Fully diluted EPS are both historical amounts.

Accepted Answer

A) True 
 B)False

Question 18

You calculate basic EPS to be $15.87 and diluted EPS to be $16.65.From a disclosure point, what needs to be disclosed?

Accepted Answer

The answer of You calculate basic EPS to be $15.87...

Question 19

Briefly describe when a company would be required to restate its EPS figures.

Accepted Answer

The answer of Briefly describe when a company would be...

Question 20

A preferred dividend claim should be subtracted from income to compute basic EPS if the preferred shares are:

Accepted Answer

A) Participating, nonconvertible, noncumulative, and the dividend has not been declared. 
B) Noncumulative, nonconvertible, non-participating, and the dividend has been declared. 
C) Noncumulative, nonconvertible, and a dividend has not been declared; however, a dividend was paid this year in fulfillment of the obligation from last year's declaration. 
D) Noncumulative, nonconvertible, and the company would like to declare a dividend; however, by law they can't because of a debit balance in the retained earnings account.

Exam 20: Earnings Per Share

When computing diluted earnings per share, convertible securities are:

On January 1, 2014, WXY had stock warrants outstanding to purchase 6,000 shares at an option price of $10.The common shares' market price was $15 the entire year.The firm has 200,000 common shares outstanding at the end of the year.The effect of the warrants on EPS is to:

Which of the following statements is correct?

Reporting earnings per share for public companies is optional; however, its presentation is strongly recommended.

A company with a simple capital structure would include which of the following in the computation of earnings per share?

Option adjustments are based on the treasury stock method.

When computing the weighted average number of shares outstanding, an actual conversion of convertible preferred shares is assumed to have occurred on the first day of the year, regardless of when it was converted.

Choose the correct statement concerning EPS.

Earnings per share is computed on the basis of:

Basic EPS & Fully diluted EPS are both historical amounts.

You calculate basic EPS to be $15.87 and diluted EPS to be $16.65.From a disclosure point, what needs to be disclosed?

Briefly describe when a company would be required to restate its EPS figures.

A preferred dividend claim should be subtracted from income to compute basic EPS if the preferred shares are: