3.3 Earnings per Share (EPS)

Question 1

Overview:

Define earnings per share (EPS)

Answer 1

• the amount of current-period earnings that can be associated with a single share of a corporation’s common stock

Question 2

Overview:

What type(s) of stock is EPS calculated for?

Answer 2

common stock

Question 3

Basic Earnings per Share (BEPS):

How many BEPS amounts must be reported on the face of the income statement?

Identify them?

Answer 3

• 2
• Income from continuing operations
• Net income

Question 4

Basic Earnings per Share (BEPS):

How is BEPS and DEPS reported for discontinued operations?

Answer 4

• BEPS & DEPS for the discontinued operation are presented on the face of the income statement or in the notes

Question 5

Basic Earnings per Share (BEPS):

Calculate BEPS

Answer 5

income available to common shareholders / weighted-average # common shares outstanding

Question 6

Calculation of BEPS Numerator:

What is the numerator for BEPS calculation?

Answer 6

Income available to common shareholders

Question 7

Calculation of BEPS Numerator:

How is the BEPS numerator calculated?

Answer 7

• reduced by dividends declared in the current period on P/S stock (whether or not paid) and
• accumulated for the current period on cumulative preferred stock (whether or not declared).

Question 8

Calculation of BEPS Numerator:

How is BEPS numerator impacted by undistributed preferred dividends paid in the current period?

Answer 8

• no affect b/c they were included in BEPS of prior years

Question 9

Calculation of BEPS Denominator:

What is the BEPS denominator?

Answer 9

• weighted average number of common shares outstanding

Question 10

Calculation of BEPS Denominator:

How is the weighted average # common shares outstanding determined?

Answer 10

• by relating the portion of the period that the shares were outstanding to the total time in the period

Question 11

Calculation of BEPS Denominator:

How do stock dividends and stock splits affect the weighted-average common shares outstanding?

Answer 11

• EPS adjusted retroactively to reflect change in capital structure as if it had occurred at the beginning of the first period presented

Question 12

Calculation of BEPS Denominator:

Define contingently issuable shares

Answer 12

• shares issuable for little or no cash consideration upon satisfaction of certain conditions