Earnings Per Share

Question 1

Requirement of ASC 260 (L)

Answer 1

Requires all public companies to disclose Basic EPS if they have a simple capital structure with no potential common shares from convertible securities, stock options, warrants, or contingent shares.

Question 2

The purpose of Diluted EPS (L)

Answer 2

Measure the performance of an entity over the reporting period while taking into account the effect of all dilutive potential common shares that were outstanding during the period.

Question 3

Objectives of ASC 260 (L)

Answer 3

• Better understand enterprise performance.
• Better assess its prospects for future net cash flows.
• Make more informed judgments about the enterprise as a whole.

Question 4

Profit or loss test (L)

Answer 4

Segment profit or loss is 10 percent or more of the greater (in absolute terms) of the combined reported profit of all profitable segments or the combined reported loss of all segments incurring a loss.

Question 5

Diluted EPS with Convertible Bonds Formula (L)

Answer 5

Net Income + (Bond Interest-Tax Effect)
Weighted Average Common Shares +
Weighted Average Potential Shares

Question 6

Weighted Average Number of Common Shares Outstanding (L)

Answer 6

The number of shares outstanding during the period, weighted to reflect the portion of the period outstanding.

Question 7

For each period for which a company presents an income statement, it must disclose (4 Items) (L)

Answer 7

1) A reconciliation of the numerators and denominators of basic and diluted EPS from continuing operations, including the individual income and per share effects of all securities used in the computations.
2) The effect of preferred dividends in arriving at income available to common stockholders in basic EPS.
3) The securities not included in the Diluted EPS computation (because they were antidilutive in the current period) that could potentially dilute Basic EPS in the future.
4) A description of any transaction that occurs after the end of the period but before the financial statements are issued that would materially change the number of common shares or potential shares.

Question 8

Revenue test (L)

Answer 8

Segment revenues, both external and intersegment, are 10 percent or more of the combined revenue, external and intersegment, of all reported operating segments.

Question 9

Diluted EPS with Convertible Preferred Stock Formula (L)

Answer 9

Net Income
Weighted Average Common Shares +
Weighted Average Potential Shares

Question 10

IFRS Segment Reporting (L)

Answer 10

Segment reporting is the same for IFRS and US GAAP

Question 11

Net Income Available to Common Shareholders (L)

Answer 11

Net income less preferred dividends for declared non cumulative preferred stock.

Question 12

Computing Earnings Per Share using the Treasury Stock Method (L)

Answer 12

Earnings per share is computed as if the funds obtained from the exercising of options and warrants at the beginning of the period (or at time of issuance, if later) were used to purchase common stock (treasury stock), at the average market price during the period.

Question 13

Aggregation Of Operating Segments (L)

Answer 13

If two or more of the segments have essentially the same business activities in essentially the same economic environment, information for these individual segments may be combined (aggregated).

Question 14

Information To Be Disclosed By Operating Segment (L)

Answer 14

General Information, Segment Profit Or Loss, Total Segment Assets And The Following Related Items, Interim Period Items and some additional disclosures such as basis of accounting.

Question 15

IFRS: The difference is in the reporting of the EPS effect of discontinued operations and extraordinary items is? (L)

Answer 15

US GAAPs requires the effect of each be reported as a part of EPS disclosure but IFRS does not require the EPS effect to be shown.

Question 16

Formula for Basic Earnings Per Share (EPS) (L)

Answer 16

Net Income Available to Common Shareholders/

Weighted Average Number of Common Shares Outstanding

Question 17

Diluted Earnings Per Share Formula (L)

Answer 17

Net Income/
Weighted Average Number of Common Shares Outstanding +
Dilutive Potential Common Shares

Question 18

Operating segments are components of an enterprise which meet these three criteria: (L)

Answer 18

1) Engage in business activities and earn revenues and incur expenses.
2) Operating results are regularly reviewed by the chief operating decision-maker to assess performance and make resource allocation decisions.
3) Discrete financial information is available from the internal reporting system.

Question 19

10% Quantitative Threshold Tests (L)

Answer 19

Once operating segments have been identified, three quantitative threshold tests are then applied to identify segments of sufficient size to warrant separate disclosure. Any segment meeting even one of these tests is separately reportable.

Question 20

Sufficiency Test (L)

Answer 20

If the total external revenue of the operating segments is less than 75% of consolidated revenue, additional operating segments are identified as reportable until the 75% level is reached.

Question 21

Basic EPS must be reported on the:(L)

Answer 21

Face of the income statement for income from continuing operations and net income.

Question 22

ASC 260 states that if there is a loss from continuing operations, Diluted EPS would be ________ as Basic EPS. (L)

Answer 22

the same

Question 23

Identifying Reportable Operating Segments Management Approach (L)

Answer 23

ASC 280 adopts a management approach to identifying segments in which segments are based on the way that management organizes segments internally for making operating decisions and assessing performance.

Question 24

Asset test (L)

Answer 24

Segment assets are 10 percent or more of the combined assets of all operating segments.

Question 25

Diluted EPS with Stock Options of Warrants (L)

Answer 25

Net Income/
Weighted Average Common Shares +
Weighted Average Potential Shares (Treasury Stock Method)