Question 1

The order for antidilutive sequencing is ranking the least dilutive security first,ascending to the most dilutive security last.

Accepted Answer

A) True 
 B)False

Question 2

George Manufacturing had net income of $200,000 and declared preferred dividends of $25,000 during the current year.George began the year with 20,000 common shares outstanding.It issued 30,000 shares on June 30 and repurchased 6,000 of the newly issued shares on November 1.Compute George's basic EPS for the year.

Accepted Answer

A) $3.50 
B) $3.98 
C) $5.15 
D) $7.95

Question 3

Harvey Inc.reported net earnings of $500,000 for the year.Harvey has 200,000 shares of common stock outstanding all year.Two years ago the company granted 20,000 stock options that allow employees to purchase shares for $15 each.The company stock has averaged $20 in the market during the year.Compute the basic and diluted EPS.

Accepted Answer

A) basic EPS $2.50; diluted EPS $2.44 
B) basic EPS $2.50; diluted EPS $2.50 
C) basic EPS $2.44; diluted EPS $2.44 
D) basic EPS $2.50; diluted EPS $2.27

Question 4

When applying the if-converted assumption for potentially diluted securities,conversions are assumed to occur at the ________.

Accepted Answer

A) end of the prior year for hypothetical conversions 
B) beginning of the year for hypothetical conversions 
C) middle of the current year for actual conversions 
D) at the beginning of the current year or on the issue date of the dilutive security if issued during the year

Question 5

Standard setters are required to provide basic EPS in the Notes to Financial Statements for at least ten years.

Accepted Answer

A) True 
 B)False

Question 6

Normally dilutive securities will become antidilutive if income from continuing operations is a net loss.

Accepted Answer

A) True 
 B)False

Question 7

Dynamic Motors,Inc.has two potentially dilutive securities.Income from continuing operations for the year is $(250,000),income from discontinued operations is $100,000 (net of tax),and the weighted average common shares outstanding is 100,000 shares.Also outstanding during the year are $5,000,000 of 6% bonds convertible into 10,000 shares of common stock.The bonds also have two detachable stock warrants for each bond which allow the bondholder to buy a share of stock for $30.The average market price of Centurion stock was $28 for the year.The tax rate is 40%.
Required: Write the basic equation for EPS and compute basic EPS.Using the order of entry,determine diluted EPS calculations.Show all computations to prepare the appropriate Income Statement presentation of basic and diluted EPS.

Accepted Answer

The answer of Dynamic Motors,Inc.has two potentially dilutive securities.Income from...

Question 8

A company may show EPS information either on the Income Statement or in the Notes to Financial Statements,whichever it prefers.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) basic EPS $350,000 - (50,000 × $100 × 8%); diluted EPS $350,000 - (50,000 × $100 × 8%) 
B) basic EPS $350,000 - (50,000 × $100 × 8%); diluted EPS $350,000 
C) basic EPS $350,000 - (50,000 × $100 × 8%); diluted EPS $350,000 + (50,000 × $100 × 8%) 
D) basic EPS $350,000; diluted EPS $350,000

Question 10

Medical Instruments reported $7,000,000 in net income for the current year.The company had $6,000,000 of 8% cumulative,non-convertible preferred stock outstanding all year,and issued,$10,000,000 of 7% convertible bonds issued on July 1.Each bond is convertible into 30 shares of common stock.Common shares outstanding at the beginning of the year was 1,000,000,but on December 15,the company declared a 2 for 1 stock split.Compute both basic and diluted EPS when the tax rate is 40%.
Instructions: Write the EPS formula.Show all computations used in your solution.

Accepted Answer

The answer of Medical Instruments reported $7,000,000 in net income...

Question 11

Pennock Inc.has convertible preferred stock outstanding.To compute the diluted EPS,it must adjust ________.

Accepted Answer

A) only the numerator 
B) only the denominator 
C) both the numerator and denominator 
D) neither the numerator nor the denominator

Question 12

Which one of the following does not require the computation of diluted earnings per share?

Accepted Answer

A) convertible bonds 
B) stock warrants 
C) preferred stock 
D) stock options

Question 13

Robertson Corporation reported net income for Year 1 of $250,000 and Year 2 of $300,000.The weighted-average common shares outstanding 100,000 in Year 1 and 120,000 in Year 2.Robertson also has 10,000 shares of $100 par value,cumulative,5% preferred stock outstanding in both years.Dividends were not declared in Year 1,but both years' dividends were declared and paid in Year 2.Compute EPS for both years.

Accepted Answer

A) Year 1,$2.00; Year 2,$2.00 
B) Year 1,$2.00; Year 2,$2.08 
C) Year 1,$2.00; Year 2,$2.50 
D) Year 1,$2.50; Year 2,$2.08

Question 14

Describe which potentially dilutive securities require after-tax adjustments to the numerator or denominator of the EPS formula.

Accepted Answer

The answer of Describe which potentially dilutive securities require after-tax...

Question 15

Executrain has 50,000,7%,bonds outstanding for the second half of the year.Each $1,000 bond,sold July 1 at par,is convertible into 20 shares of common stock.The corporate tax rate is 40%.What is the incremental income per common share?

Accepted Answer

A) $0.70 
B) $1.05 
C) $1.50 
D) $2.10

Question 16

The treasury stock method is used when the organizational structure includes ________.

Accepted Answer

A) convertible preferred stock 
B) convertible bonds 
C) only stock options 
D) stock options or warrants

Question 17

When a potentially dilutive security is present,a company must test the security to see if it is dilutive or antidilutive.Antidilutive securities occur when the diluted EPS is ________.

Accepted Answer

A) greater than the basic EPS 
B) less than the basic EPS 
C) the same as basic EPS 
D) either the same or less than basic EPS

Question 18

When companies release EPS information,it does not influence stock prices.

Accepted Answer

A) True 
 B)False

Question 19

Earnings per share is the most-often quoted financial statistic in the business media.

Accepted Answer

A) True 
 B)False

Question 20

Stock options and warrants differ from convertible debt and preferred stock in that they generally provide cash to the issuing entity.

Accepted Answer

A) True 
 B)False

Exam 21: Earnings Per Share

The order for antidilutive sequencing is ranking the least dilutive security first,ascending to the most dilutive security last.

When applying the if-converted assumption for potentially diluted securities,conversions are assumed to occur at the ________.

Standard setters are required to provide basic EPS in the Notes to Financial Statements for at least ten years.

Normally dilutive securities will become antidilutive if income from continuing operations is a net loss.

A company may show EPS information either on the Income Statement or in the Notes to Financial Statements,whichever it prefers.

Pennock Inc.has convertible preferred stock outstanding.To compute the diluted EPS,it must adjust ________.

Which one of the following does not require the computation of diluted earnings per share?

Describe which potentially dilutive securities require after-tax adjustments to the numerator or denominator of the EPS formula.

Executrain has 50,000,7%,bonds outstanding for the second half of the year.Each $1,000 bond,sold July 1 at par,is convertible into 20 shares of common stock.The corporate tax rate is 40%.What is the incremental income per common share?

The treasury stock method is used when the organizational structure includes ________.

When a potentially dilutive security is present,a company must test the security to see if it is dilutive or antidilutive.Antidilutive securities occur when the diluted EPS is ________.

When companies release EPS information,it does not influence stock prices.

Earnings per share is the most-often quoted financial statistic in the business media.

Stock options and warrants differ from convertible debt and preferred stock in that they generally provide cash to the issuing entity.