Question 1

In determining basic earnings per share,the annual dividend on convertible cumulative preferred shares,which are not a dilutive convertible security,should be:

Accepted Answer

A)  Added back to net income whether declared or not. 
B)  Disregarded. 
C)  Deducted from net income only if declared. 
D)  Deducted from net income whether declared or not.

Question 2

If net income is $25,000 and there were 18,000 common shares issued and outstanding the entire year,and 100 cumulative,nonconvertible,6% $100 par preferred shares outstanding the entire year,what is EPS if no dividends were declared during the year.There are two years' dividends in arrears on the preferred shares.(Rounded to the nearest cent)

Accepted Answer

A)  $1.39 
B)  $1.18 
C)  $1.25 
D)  $1.16 
E)  $1.36

Question 3

LASTEPS Co.had granted 20,000 options to buy one common share at $10 per share several years ago.The company earned $200,000 this year and had 300,000 common shares outstanding the entire year.The company earns interest at 8% and has a 40% tax rate.Given only the above information,what are basic EPS and diluted EPS respectively that should be reported? (Rounded to the nearest cent)

Accepted Answer

A)  $0.67; $0.66 
B)  $0.65; $0.63 
C)  $0.63; $0.62 
D)  $0.65; $0.64 
E)  Only basic EPS need be reported

Question 4

The following information relates to the SPE company in 2014. Net income: $50,000
Common shares outstanding on January 1: 30,000
On June 30 issued 2,000 8% cumulative convertible preferred shares
$100 par,each convertible into 10 common shares
Issued a 40% stock dividend on Sept.30
What is the diluted EPS? (Rounded to the nearest cent)

Accepted Answer

A)  $1.00 
B)  $0.89 
C)  $0.81 
D)  $0.76

Question 5

A simple capital structure is one in which the shareholders' equity consists only of common shares or includes no potentially dilutive securities.

Accepted Answer

A) True 
 B)False

Question 6

Steps in calculating diluted EPS include the following except:

Accepted Answer

A)  Identify options outstanding at the end of the period 
B)  Identify any convertible senior debt or shares that actually converted during the period. 
C)  Rank the items from the least dilutive to the most dilutive. 
D)  Determine if the options exercised were in-the-money and thus dilutive.

Question 7

Given the following sequence of events,determine the weighted average number of shares for earnings per share purposes: January 1 100 common shares issued and outstanding
April 1 issued 50 previously unissued shares
May 1 split the stock 2-for-1
June 30 purchased 100 shares for the treasury
July 30 distributed a 20% stock dividend
December 31 Split the stock 3-for-1

Accepted Answer

A)  1,125 
B)  475 
C)  270 
D)  810

Question 8

At December 31,2013,MNO had 50,000 common shares issued and outstanding.On April 1,2014,an additional 10,000 common shares were issued.MNO's net income for the year ended December 31,2014,was $1,035,000.During 2014,MNO declared and paid $600,000 cash dividends on its nonconvertible preferred shares (the full year's requirement).The earnings per common share,rounded to the nearest cent,for the year ended December 31,2014,should be:

Accepted Answer

A)  $7.57. 
B)  $7.92. 
C)  $18.00. 
D)  $18.84.

Question 9

On January 1,2012 JMR had 30,000 common shares issued and outstanding.On July 1,JMR sold 500 shares.The net income for the year was $100,000.Calculate the basic earnings per share.

Accepted Answer

The answer of On January 1,2012 JMR had 30,000 common...

Question 10

Basic EPS is an historical amount.

Accepted Answer

A) True 
 B)False

Question 11

When computing diluted earnings per share,convertible securities are:

Accepted Answer

A)  Ignored. 
B)  Recognized only if they are dilutive. 
C)  Recognized only if they are anti-dilutive. 
D)  Recognized whether they are dilutive or anti-dilutive.

Question 12

The 2014 net income of MNO was $300,000,and 100,000 of its common shares were outstanding during the entire year.In addition,outstanding options existed to purchase 10,000 common shares at $10 per share.These options were granted in 2012 and none had been exercised by December 31,2014.MNO earned interest at 8% and had a 50% tax rate.The amount,which should be shown as MNO's diluted earnings per share for 2014,is (rounded to the nearest cent).

Accepted Answer

A)  $2.69 
B)  $2.73 
C)  $2.76 
D)  $2.80

Question 13

ABC paid $5,000 in dividends to its preferred shareholders.The 5 percent preferred shares (10,000 shares outstanding)are nonconvertible and noncumulative.The $5,000 dividend:

Accepted Answer

A)  Will be added to the numerator of the EPS calculation. 
B)  Will be subtracted from the numerator of the EPS calculation. 
C)  Will be added to the denominator of the EPS calculation. 
D)  May not affect the EPS calculation, depending on the declaration date of the dividends.

Question 14

At December 31,2013,XYZ had 40,000 common shares issued and outstanding and 10,000 nonconvertible preferred shares issued and outstanding.XYZ's net income for the year ended December 31,2014,was $120,000.During 2014,XYZ declared and paid $50,000 cash dividends on common and $8,000 cash dividends on the nonconvertible preferred (the annual requirement).There were no common share or preferred share transactions during the year.The earnings per common share for the year ended December 31,2014,should be:

Accepted Answer

A)  $1.75 
B)  $2.40 
C)  $2.80 
D)  $3.00

Question 15

SKZ reported the following capital structure on December 31,2014,and the related results of operations for 2014:
Additional data:
(a)Company earns interest at 10%
(b)Option price of common shares for holders of common stock warrants,$54.
(c)No preferred dividends were declared or paid during 2014.
(d)The tax rate is 40%.
Compute
Basic EPS $____________
Diluted EPS $____________

Accepted Answer

The answer of SKZ reported the following capital structure on...

Question 16

FED had 100 common shares issued and outstanding at December 31,2013.On July 1,2014,FED issued a 10 percent stock dividend.Unexercised stock options to purchase 20 common shares (adjusted for 2014 stock dividends)at $20 per share were outstanding at the beginning and end of 2014.The average market price of FED'S common shares (which was not affected by the stock dividend)was $25 per share during 2014.The ending market price was $30.Net income for the year ended December 31,2014,was $2,200.What was FED'S 2014 basic earnings per share,rounded to the nearest cent?

Accepted Answer

A)  $16.92 
B)  $18.33 
C)  $20.00 
D)  $22.00

Question 17

For purposes of computing the average number of common shares outstanding,stock dividends are treated in the same manner as stock splits.

Accepted Answer

A) True 
 B)False

Question 18

Convertible securities and options are always included in the calculation of diluted EPS.

Accepted Answer

A) True 
 B)False

Question 19

If the corporation purchases common treasury stock,those shares would be included in the EPS computation only for the fraction of the year that they were outstanding.

Accepted Answer

A) True 
 B)False

Question 20

Diluted EPS indicate long-run impact that the likely conversion will have on the earnings attributable to common shares.

Accepted Answer

A) True 
 B)False

Exam 9: Long-Lived Assets

In determining basic earnings per share,the annual dividend on convertible cumulative preferred shares,which are not a dilutive convertible security,should be:

A simple capital structure is one in which the shareholders' equity consists only of common shares or includes no potentially dilutive securities.

Steps in calculating diluted EPS include the following except:

On January 1,2012 JMR had 30,000 common shares issued and outstanding.On July 1,JMR sold 500 shares.The net income for the year was $100,000.Calculate the basic earnings per share.

Basic EPS is an historical amount.

When computing diluted earnings per share,convertible securities are:

ABC paid $5,000 in dividends to its preferred shareholders.The 5 percent preferred shares (10,000 shares outstanding) are nonconvertible and noncumulative.The $5,000 dividend:

For purposes of computing the average number of common shares outstanding,stock dividends are treated in the same manner as stock splits.

Convertible securities and options are always included in the calculation of diluted EPS.

If the corporation purchases common treasury stock,those shares would be included in the EPS computation only for the fraction of the year that they were outstanding.

Diluted EPS indicate long-run impact that the likely conversion will have on the earnings attributable to common shares.