F7-Earnings Per Share

Question 1

What is the basic formula used for calculating EPS?

Answer 1

(Income available to common shareholders)/
(Weighted-average # of common shares outstanding).

Question 2

Compare basic and diluted EPS.

Describe Basic EPS:

Answer 2

Basic: Simple capital structure(only common stock outstanding):

Income available to common shareholders/ Weighted-average common shares outstanding.

Question 3

Compare basic and diluted EPS.

Describe Diluted EPS:

Answer 3

Diluted: Complex Capital Structure:

Income available to common shareholders _assuming conversion of all dilutive securities/ _ Weighted-average common shares outstanding after conversion of all dilutive shares.

Question 4

Name the potentially dilutive securities or instruments.

Answer 4

• Stock options and warrants and their equivalents.
• Convertible securities (bonds or preferred stock)
• Contracts that may be settled in stock or cash.
• Contingent issuable shares.

Question 5

What is the antidilution rule?

Answer 5

Any conversion, exercise, or contingent issuance that has an antidilutive effect (increases EPS or decrease loss per share) is not included in the calculation unless the shares have actually been converted, exercised, or satisfaction of the contingency met.

Each potential common share is considered separately in sequence from most to least dilutive, with in the money options and warrants generally included first.

Question 6

List the reporting requirements for EPS.

Answer 6

Face of income statement, with equal prominence for basic and diluted per-share amounts, for both income from continuing operations and net income.

Per-share amounts for discontinued operations and extraordinary items can be reported on the face of the income statement or in the notes to the financial statements.