Stockholder's Equity - 15B EPS

Question 1

Any financial instrument that imposes an obligation on the issuer to transfer assets or issue equity shares is classified as what?

Answer 1

A liability

Ex: Mandatorily Redeemable Preferred Stock

Question 2

Where is a temporary equity (a mezzanine item) located on the BS?

Answer 2

Between Liabilities and SHE

Question 3

What should be classified as temporary equity?

Answer 3

Preferred Securities that are redeemable for cash or other assets if:

1. The preferred stock is redeemable at a fixed or determinable price on a fixed or determinable date
2. The preferred stock is redeemable at the option of the holder or upon occurrence of an event not withing the control of the issuer

Question 4

What is the exception to the general rule that stock dividends and stock splits are treated as if outstanding the entire year?

Answer 4

If a stock dividend provides that the shareholder’s may receiver either cash or stock, the dividend is treated as a share issuance, and weighted for the time period outstanding

Question 5

Basic EPS is only required for SEC registerants?

Answer 5

Yes

Question 6

IFRS is same as USGAAP for EPS?

Answer 6

Yes

Question 7

What type of SHE would a company with a simple capital structure have?

Answer 7

C/S
P/S
B/P

Question 8

What type of SHE would a company with a complex capital structure have?

Answer 8

C/S, P/S, B/P, Convertible P/S, Convertible B/P, & Stock Options including employee Stock Options or Contingent Shares

Question 9

If a company has a simple complex structure, they only have to compute Basic EPS?

Answer 9

Yes

Question 10

If a company has a complex capital structure, they have to compute both Basic and Diluted EPS

Answer 10

Yes

Question 11

Basic & Diluted EPS can be calculated for what parts of the IS?

Answer 11

1. I - ncome from Continuing Operations
2. D - iscontinued Operations
3. E - xtraordinary Gain/Losses
4. Net Income

A total of 8 EPS Calculations could be figured (4 for Basic & 4 for Diluted)

Question 12

Basic & Diluted EPS must be shown where for I & NI?

Answer 12

Face of the IS; D & E may be shown either on the face or in the footnotes

Question 13

How is Basic EPS calculated?

Answer 13

(Net Income - CY P/S Dividends)/

Weighted Avg # of C/S Shares Outstanding

Question 14

Preferred Stock is broken down in what two ways and what are their differences?

Answer 14

1. Cumulative - If no dividends are paid out for a given year, then that dividend is accumulated until dividends are declared; when the dividends are declared, the accumulated dividends are called dividends in arrears
2. Non-cumulative - Either declared (P/S holders will be paid) or non-declared (P/S holders will receive no dividend for that year)

Question 15

Is Treasury Stock considered to be issued? Outstanding?

Answer 15

Yes; No

Question 16

How is Basic EPS calculated using Cindy’s Method?

Answer 16

1. Take beginning and each change in SHE and compute the weighted average

Ex: Jan 1: 100,000 shares x 12/12 = 100,000 Weighted Shares
April 1: 60,000 x 9/12 = 45,000 W/A Shares
July 1: 10% Stock Div. Take a subtotal of the CY W/A Shares & multiply by the 1 + Stock Div % (do the same for Stock splits)
November 1: (12,000) shares x 2/12 = 2,000 W/A Shares of T/S bought back

Question 17

How is Basic EPS calculated using the Textbook Method?

Answer 17

Same as above except instead of calculating by the specific transaction, you calculate by time period and then add up all the time periods at the end

Question 18

If the question asks for a COMPARATIVE view of two different years, and there is a stock split in one of the years, what must be done to the other year?

Answer 18

Apply the stock split as well so the numbers will be comparative

Question 19

How is Diluted EPS calculated?

Answer 19

(Net Income - CY P/S Div + NoT Bond Int Exp)/(W/A # C/S Shares O/S + Common Stock Equivalents)

Question 20

Why is Diluted EPS calculated?

Answer 20

To take the viewpoint of conservatism in where we take all the Common Stock Equivalents and pretend they are converted to Common Stock which will drive the denominator in the calculation up and the EPS down

***Take the worst case scenario

Question 21

Is it possible for Diluted EPS to look better than Basic EPS?

Answer 21

1. If Securities are Anti-Dilutive

2. If there is a loss in NI - in this case, Base & Diluted will be the same

Question 22

Are Contingent Issuances based only on the passage of time included in Basic EPS?

Answer 22

No, they are only included in Diluted EPS

Question 23

What is manditorily redeemable preferred stock classified as on the BS?

Answer 23

A liability