F7 - Earnings Per Share

Question 1

T/F: Stock splits and stock dividends are treated as if they occurred at the beginning of the fiscal year no matter when they occurred throughout the year

Answer 1

True; they are treated retroactively

Question 2

T/F: Contingent shares (that are dilutive) are included in the calculation of basic earnings per share (EPS)

Answer 2

True; if (and as of the date) all conditions for issuance are met

Question 3

T/F: If a stock dividend or a stock split occurs after year-end but before issuance of the financial statements, the new amount of stock outstanding is used on the financials

Answer 3

True; in fact, the new amount must be used when computing EPS for comparative years as well

Question 4

T/F: In computing diluted EPS, preferred dividends are not subtracted from net income

Answer 4

True; it is assumed that they are converted and thus not eligible for a preferred dividend

Question 5

How are dividends calculated on cumulative preferred stock?

Answer 5

Par value x number of shares x percentage

Question 6

How are additional shares outstanding from a stock option calculated?

Answer 6

No. of shares issued - (no. of shares x exercise price/average market price)