300804

Question 1

1.

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?

$10.00

$9.09

$9.00

$11.11

Answer 1

$9.00

Basic earnings per share is (Net income - Preferred stock dividends) ÷ Weighted-average common shares.

$2,000,000 - (20,000 × $100 × 0.10) ÷ 200,000 = $9.00

Question 2

Earnings per Share (EPS

Answer 2

Earnings per share (EPS) is, generally, the allocation of a pro rata share of income to each share of common stock (EPS is not computed on preferred stock). It is a comparison of net income of an enterprise with the average number of common shares outstanding during the year.

The Financial Accounting Standards Board (FASB) has established this definition in FASB ASC 260-10-45. The required reporting for public companies is basic EPS and diluted EPS.

The standard is required for all interim and annual reports ending after September 15, 2009.

FASB ASC 260-10 applies to all entities that have issued common stock or potential common stock that trades in a public market. Potential common stock consists of other securities and contractual arrangements that may result in the issuance of common stock in the future, such as options, warrants, convertible securities, and contingent stock agreements.

Corporations with simple capital structures are required to report only basic earnings per share. Corporations with complex capital structures are required to report basic earnings per share and diluted earnings per share.

A simple capital structure is one that consists of capital stock and includes no potential for dilution via conversions, exercise of options, or other arrangements. A complex capital structure would include convertible bonds or preferred stock, outstanding options or warrants, and any contractual arrangement that would include the issuance of new shares.

Basic EPS measures the performance of an entity over the reporting period based on its outstanding common stock. The calculation is to divide the income attributable to common stock by the weighted-average number of common shares outstanding.

Diluted EPS measures the performance of an entity over the reporting period based on its outstanding common stock while giving effect to all dilutive potential shares that were outstanding. The calculation includes income attributable to common stock plus adjustments resulting from the issuance of dilutive potential common shares. This adjusted income figure is divided by the weighted-average number of common shares outstanding increased by the dilutive potential common shares.

Question 3

2142.12

Answer 3

Question 4

FASB ASC 260-10-45-11