CH 7 - EPS & SE

Question 1

EPS is presented

Answer 1

on the face of the income statement

Question 2

Basic EPS formula

Answer 2

income available to CS - (cummulative preferred % or preferred dividends paid)/ weighted avg # of common shares

Question 3

Stock dividends and stock split treatment

Answer 3

treated as if occurred in the beginning of the period - RETROACTIVELY

Question 4

Dilutive

Anti Dilutive

Answer 4

1 - MKT > Exercise

2 - Exercise > MKT

Question 5

Additional Shares Outstanding Formula

Answer 5

of shares - ( # of shares * exercise price) / AVG MKT PRICE

Question 6

EPS takes into consideration

Answer 6

ONLY contingent shares
NOT
Options and Warrants
Convertibles

Question 7

Retroactive application TRICK

Answer 7

not only current year; goes back to the 1st year items are outstanding

Question 8

Diluted EPS includes

Answer 8

NI + Interest Expense - (deductible amount of interest expense)/ Outstanding Stock INCLUDES shares that have the ability to be converted

Question 9

Stock rights effect the balance sheet when

Answer 9

1 - they are WITH consideration (WITHOUT DO NOTHING)

2 - exercised

Question 10

Liquidating Dividend JE:

Define

Answer 10

RE XX DR
APIC ( Liquidating - RE) XX DR
CS XX CR

Any amount over RE (NI is not included)

Question 11

Exercise effect stock options outstanding by

Answer 11

Reducing them

Question 12

Treasury Stock effect what part of the F/S

Answer 12

Balance sheet only

Question 13

Intrinsic Value Formula

Answer 13

of share options *(MKT price @ grant date - exercise price of share option)

Question 14

Debt to Equity Ration

Answer 14

Liabilities/Equity

Question 15

AR Average Collection Period

Answer 15

Avg A/R / (sales/365)

Question 16

AR Turnover Ratio

Answer 16

Sales/AVG receivables

Question 17

Inventory Turnover

Answer 17

COGS/Avg Inventory

Question 18

1- Property Dividend valuation

2- JE to record Property Dividend

Answer 18

1- FMV
2- RE DR
G/L (Valuation @ declaration - CV) DR OR CR
Property CR

Question 19

Stock Splits Effect

Answer 19

No effect on Capital Stock or RE

Question 20

Dividends Distrubuted Effect
1 - JE
2 - Small Stock Valuation
3 - Large Stock Valuation

Answer 20

2- RE XX DR
APIC XX DR
CS XX CR

3 - RE DR
CS CR
CS DR
CAPITAL STOCK (CR)

LARGE dividend SE decreases; small dividend no change in SE

Question 21

Book Value of CS

Answer 21

\+ ALL Components of B/S Equity 
- Preferred Shares
- Dividends in Arrears
- Preferred Premuims
= Value/ Total shares outstanding

Question 22

Disclosures to Equity
1
2

Answer 22

1 - Dividends in Arrears

2 - Liquidation Preferences

Question 23

Key Point

Allocation is based on what valuation

Answer 23

FMV

Question 24

Subscriptions record APIC @…

Answer 24

Time of subscription

Question 25

Stock dividends are reported by investor investee | Cash Dividends

Answer 25

As a component of equity | A component of NI (WORKING CAPITAL)

Question 26

To record Stock Options | JE:

Answer 26

NO JE

Question 27

To record Exercise of Stock Options

Answer 27

Stock Price @ Grant Date XX DR Compensation Cost XX DR Stock at PAR XX CR PLUG XX CR

Question 28

Expiration of Stock Option JE:

Answer 28

Stock Option XX DR | Expired Stock Option XX CR

Question 29

Compensation of Stock Option period

Answer 29

Measured over SERVICE PERIOD - ONCE EXERCISED PERIOD ENDS

Question 30

Financial Instruments that are presented as Liabilities

Answer 30

1 - Manditorily Redeemable (exception entity termination) 2 - Repurchase of shares by asset transfer 3 - Obligation to issue variable shares (exception fixed amt; variation other than FMV; inverse variations) 4 - Unconditional Redemption Feature

Question 31

Price to Earnings Formula

Answer 31

MKT Price/ Basic EPS

Question 32

Reduction of PAR value effect

Answer 32

more cash is available

Question 33

Preferred Dividends Ratio

Answer 33

NI/ Total Preferred Dividends

Question 34

Retirement of Stock JE:

Answer 34

Reverse out original or par value | Reverse of original or par APIC

Question 35

Contributed Capital

Answer 35

CASH

Question 36

Cumulative Preferred Dividends are not liabilities until

Answer 36

Declared by the Board of Directors

Question 37

Diluted EPS denominator includes

Answer 37

includes CS, Convertible Bonds, & Convertible Preferred Shares

Question 38

10% Cumulative Preferred Shares; 10% is

Answer 38

the amount of dividends for the current year

Question 39

Diluted EPS numerator

Answer 39

NI + interest - (tax deductible % of interest)

Question 40

IFRS Financial Instruments w/ both debt & equity

Answer 40

Separate components as liability and equity

Question 41

EPS is presented

Answer 41

on the face of the I/S

Question 42

Dividends and charged to RE & valued @

Answer 42

at DATE of declaration

Question 43

Effect on EPS Antidulutive Dilutive

Answer 43

1 - increases EPS | 2 - decreases EPS

Question 44

Method used to convert preferred shares to ordinary share

Answer 44

book value method

Question 45

Cumulative preferred stock not declared effect on EPS

Answer 45

STILL subtract from basic EPS

Question 46

Cummulative preferred stock dividends and F/S

Answer 46

FOOTNOTE

Question 47

Service in exchange for stock are valued at

Answer 47

FMV of STOCK on date of the agreement

Question 48

IFRS prohibits this method for treasury stock

Answer 48

FAIR VALUE METHOD

Question 49

How are the following dividends recorded 1 - not vesting 2 vesting

Answer 49

1 - compensation expense | 2 - charged against RE

Question 50

Appropriation of Retained Earnings are shown

Answer 50

in stockholders equity

Question 51

Quasi Reorg JE:

Answer 51

APIC XX DR | RE XX CR

Question 52

Compensation Expense is recognized immediately only when

Answer 52

options have been granted for a prior service period

Question 53

What are stock warrants

Answer 53

shareholders rights to unissued treasury stock