Public Company Reporting Flashcards
(13 cards)
What is the formula for Diluted EPS?
(Net Income-Pref. Stock dividends) + Convertible preferred stock dividends + convertible debt interest /
Weighted-Avg No. of shares + New shares issued from conversion.
Jen Co. had 200,000 shares of common stock and 20,000 shares of 10%, $100 par value cumulative preferred stock. No dividends on common stock were declared during the year. Net income was $2,000,000. What was Jen’s basic earnings per share?
A. $9.00
B. $9.09
C. $10.00
D. $11.11
A. $9.00
In this scenario, net income is $2,000,000 and the preferred stock is cumulative. The annual dividend on the cumulative preferred stock is $200,000 [(20,000 shares × $100 par) × 10%]. Because there were no common stock transactions during the year, the weighted average common stock outstanding is 200,000 shares. Accordingly, EPS is $9.00, as shown below:
BasicEPS=$2,000,000−$200,000200,000shares=$9.00
If the exercise price is greater than the market price of a stock option are the stocks considered dilutive and included in diluted EPS?
No, they are called antidilutive in this case and are not included.
Coffee Co. had the following information related to common and preferred shares during the year:
Common shares outstanding 1/1 700,000
Common shares repurchased 3/31 20,000
Conversion of preferred shares 6/30 40,000
Common shares repurchased 12/1 36,000
Coffee reported net income of $2,000,000 at December 31. What amount of shares should Coffee use as the denominator in the computation of basic earnings per share?
A. 684,000
B. 700,000
C. 702,000
D. 740,000
C. 702,000
Shares repurchased (ie, treasury stock) are also weighted but reduce the shares based on the weighted period not outstanding. If a company has a complex capital structure (ie, securities that are convertible into common stock), only actual conversion of the securities is used in the calculation of basic EPS. Coffee Co.’s weighted-average number of common shares (the denominator) is 702,000 shares
West Co. had earnings per share of $15.00 for Year 3 before considering the effects of any convertible securities. No conversion or exercise of convertible securities occurred during Year 3. However, possible conversion of convertible bonds would have reduced earnings per share by $0.75. The effect of possible exercise of common stock options would have increased earnings per share by $0.10. What amount should West report as diluted earnings per share for Year 3?
A. $14.25
B. $14.35
C. $15.00
D. $15.10
A. $14.25
You only include the numbers that decrease EPS, if they increase EPS then they are antidilutive.
A company has basic earnings per share of $12.18. If the tax rate is 25%, which of the following securities would be dilutive?
15,000 incentive stock options with an exercise price of $17 to its employees and an average market price of $15 per share.
Cumulative 9%, $30 par preferred stock.
Incentive stock optionsCumulative preferred stock
A. Yes Yes
B. Yes No
C. No Yes
D. No No
D. No No
Since the preferred stock is not convertible to common stock, it is not potentially dilutive. Although the stock options are a potentially dilutive security, the exercise price is greater than the market price, which makes them antidilutive (the company can buy back more shares than it issues). Therefore, neither stock option is dilutive.
The if-converted method of computing earnings per share data assumes conversion of convertible securities as of the
A. Beginning of the earliest period reported (or at time of issuance, if later).
B. Beginning of the earliest period reported (regardless of time of issuance).
C. Middle of the earliest period reported (regardless of time of issuance).
D. Ending of the earliest period reported (regardless of time of issuance).
A. Beginning of the earliest period reported (or at time of issuance, if later).
Wood Co.’s dividends on noncumulative preferred stock have been declared but not paid. Wood has not declared or paid dividends on its cumulative preferred stock in the current or the prior year, and has reported a net loss in the current year. For the purpose of computing basic earnings per share, how should the income available to common stockholders be calculated?
A. The current-year dividends and the dividends in arrears on the cumulative preferred stock should be added to the net loss, but the dividends on the noncumulative preferred stock should not be included in the calculation.
B. The dividends on the noncumulative preferred stock should be added to the net loss, but the current-year dividends and the dividends in arrears on the cumulative preferred stock should not be included in the calculation.
C. The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss.
D. Neither the dividends on the noncumulative preferred stock nor the current-year dividends and the dividends in arrears on cumulative preferred stock should be included in the calculation.
C. The dividends on the noncumulative preferred stock and the current-year dividends on the cumulative preferred stock should be added to the net loss.
If preferred stock is noncumulative (ie, not owed dividends), only declared dividends are considered. If the preferred stock is cumulative (ie, must be paid all owed dividends before other shareholders), only the currentannual dividend is used, regardless if declared or paid. In computing EPS, dividends in arrears for cumulative P/S from prior years are never considered since those amounts would have been subtracted previously in determining EPS.
Ute Co. had the following capital structure during Year 2 and Year 3:
Preferred stock, $10 par, 4% cumulative,
25,000 shares issued and outstanding $250,000
Common stock, $5 par,
200,000 shares issued and outstanding $1,000,000
Ute reported net income of $500,000 for the year ended December 31, Year 3. Ute paid no preferred dividends during Year 2 and paid $16,000 in preferred dividends during Year 3. In its December 31, Year 3 income statement, what amount should Ute report as basic earnings per share?
A. $2.42
B. $2.45
C. $2.48
D. $2.50
B. $2.45
$6,000 for the $16,000 dividends are dividends in arrears and aren’t included in the calculation.
A company had the following outstanding shares as of January 1, Year 2:
Preferred stock, $60 par, 4%, cumulative 10,000 shares
Common stock, $3 par 50,000 shares
On April 1, Year 2, the company sold 8,000 shares of previously unissued common stock. No dividends were in arrears on January 1, Year 2, and no dividends were declared or paid during Year 2. Net income for Year 2 totaled $236,000. What amount is basic earnings per share for the year ended December 31, Year 2?
A. $3.66
B. $3.79
C. $4.07
D. $4.21
B. $3.79
With cumulative preferred stock, the current year dividend (declared or undeclared) is always subtracted from net income; for noncumulative preferred stock, only declared dividends are subtracted.
Peters Corp.’s capital structure was as follows:
December 31
Year 1 Year 2
Outstanding shares of stock:
Common 110,000 110,000
Convertible preferred 10,000 10,000
During year 2, Peters paid dividends of $3.00 per share on its preferred stock. The preferred shares are convertible into 20,000 shares of common stock and are considered common stock equivalents. Net income for year 2 was $850,000. Assume that the income tax rate is 30%. The diluted earnings per share for year 2 is
A. $6.31
B. $6.54
C. $7.08
D. $7.45
B. $6.54
You subtract the dividend payments but then add them back since they are convertible so they offset each other and the numerator should stay 850,000
For each type of filer list the market value of securities that make them that type of filer and the number of days they have to file form 10K and 10Q
Large Accelerated
Accelerated
Non-accelerated
Large Accelerated - > 700 million, 60 days for 10K, 40 days for 10Q
Accelerated - 75 - 700 million, 75 days for 10K, 40 days for 10Q
Non-accelerated - < 75 million, 90 days for 10K, and 45 days for 10Q
Cox Corporation had 1,200,000 shares of common stock outstanding on January 1 and December 31, year 2. In connection with the acquisition of a subsidiary company in June year 1, Cox is required to issue 50,000 additional shares of its common stock on July 1, year 3, to the former owners of the subsidiary. Cox paid $200,000 in preferred stock dividends in year 2, and reported net income of $3,400,000 for the year. Cox’s diluted earnings per share for year 2 should be
A. $2.83
B. $2.72
C. $2.67
D. $2.56
D. $2.56
You include the 50,000 because the contingency was created in year 1.
