F1 - EPS

Question 1

The senior accountant for Carlton Co., a public company with a complex capital structure, has just finished preparing Carlton’s income statement for the current fiscal year. While reviewing the income statement, Carlton’s finance director noticed that the earnings per share data has been omitted. What changes will have to be made to Carlton’s income statement as a result of the omission of the earnings per share data?

Answer 1

All public entities must present earnings per share on the face of the income statement.

Question 2

Simple Capital Structure

Answer 2

basic EPS for income from continuing operations and net income are presented

Question 3

In determining earnings per share, interest expense, net of applicable income taxes, on convertible debt that is dilutive should be:

Answer 3

Interest expense (net of income tax) on debt considered would be added back to the numerator for diluted EPS if the effects are dilutive.

Question 4

In computing the weighted-average number of shares outstanding during the year, what should happen midyear events must be treated as if it had occurred at the beginning of the year?

Answer 4

Declaration and distribution of stock dividend

Question 5

Under U.S. GAAP, earnings per share data should be reported for which one:

• Discontinued operations
• Income from continuing operations

Answer 5

Yes both of them

Question 6

Basic EPS Formula:

Answer 6

Income available to common shareholders(Net income - Preferred div)
/ weighted average number of common shares outstanding(issued/owner has)

Question 7

Wegithed Avg Common shares outstanding (WASCO) formula:

Answer 7

Shares outstanding beg of year
+shares sold during the period(treasury)
-shares reaquired(purchased)
-reverse stock split
+stock dividend
+stock splits

Question 8

EPS Income available to common shareholders how to solve for that when convirtible bonds are issued…

Answer 8

$ bond convertible X convertible % x (1-Tax rate)

Question 9

Additional Shares Outstanding formula:

Answer 9

=# of shares - [ # of shares x Excess price/avg mkt price]

Question 10

stock dividends are applied retroactive which means to get shares outstanding we need too..

Answer 10

we go back to past dates so like on beg balance we multiply by stock % by also adding 1 to it so example is (1+ %) and include the month they are in divided by 12 months

Question 11

When doing EPS for finding WASCO(regarding months)?

Answer 11

• always multiply by the original # shares x the month so (march 31st) we will multiply 9/12 bc thats how many months are left

Question 12

Dilutive means that

Answer 12

Basic EPS decreases

Question 13

Dilutive has 4 Securities and 3 Calculations in which basic eps formula changes those are :

Answer 13

1. Convertible preferred stock
2. convertible bonds
3. options & warrants

Question 14

For the first dilution calculation called convertible preferred bonds….. we will do the following:

Answer 14

1. Find anything that say convertible preferred stock
2. find if the says “ # shares convert into # shares of common stock” meaning we will multiply those to get the additional WASCO to add to denominator
3. we will REMOVE preferred dividends from numerator because we converted preferred stock

Question 15

For the second dilution calculation called convertible bonds….. we will do the following:

Answer 15

1. We first start with adding to denominator wasco by multiplying the ( # convertible bonds X # of shares of c/s ) which then we will add to WASCO
2. Now we add to numerator (NI) by (CV x Mkt Rate x (1-tax rate)) to get the interest bonds
3. then proceed with the division to determine if its dilituve to anti

Question 16

For the third dilution calculation called options and warrants….. we will do the following:

Answer 16

1. find if exercise price is below avg mkt price
2. if yes increase common shares if NOT decrease common shares

Question 17

Dividends on nonconvertible cumulative preferred stock, when establishing basic earnings per share, should be

Answer 17

Deducted from net income whether declared or not

Question 18

When their is stock split on year 2 you will have to do the same for year 1 wasco because

Answer 18

subsequent years…..