EPS

Question 1

How is interest added in the calc of dilutive EPS?

Answer 1

AFTER-TAX interest expense on convertible debt

Question 2

What does dilutive EPS mean?

Answer 2

Securities that decreases EPS. It uses the “if-converted” method.

Question 2

If contingent shares are dilutive, can they be used in calculation of BASIC EPS?

Answer 2

YES

Question 2

True or False: Is annual dividend always subtracted if the preferred stock is CUMULATIVE regardless of whether the dividend is declared or paid?

Answer 2

True

Question 3

What’s the treatment of issuance of Common stock dividend and stock split?

Answer 3

Treat as if it has occurred on Jan 1

Question 4

When EPS is being calculated for Comparative statements of Year 2 and Year 3, will stock split be added in both years even if stock split took place in Year 2?

Answer 4

Yes, stock split needs to be added to both Year 2 and Year 3 calc of EPS (retroactive treatment) coz it’s for comparative statement.

Question 5

EPS Numerator =

Answer 5

Annual interest on Bonds at STATED Rate + DISCOUNT Amortization - Tax effect

Question 6

DEPS = 1+2-3

Answer 6

(1) NI 800000

(2) +INT 320000
+ DISCOUNT
-PREMIUM -28000
TOTAL EXPENSE 292000
NET OF TAX 233600

(3) -DIVIDENDS ON PREFERRED STOCK -6000

Question 7

When to consider ISOs as Dilutive or Anti-dilutive in the calculation of DEPS?

Answer 7

ISO No. of stock options * Exercise Price = Potentially Dilutive Securities e.g. 10000*30=300000

It will retire Potentially Dilutive Securities/Market price 300000/25=12000 shares retired
Since 10000 additional shares would be issued and 12000 will be retired, the ISOs are considered antidilutive and are not included in the calc of DEPS

Question 8

Common shares repurchased = treasury stock

Answer 8

to be deducted from Denominator while calculating BEPS

Question 9

Sold 8,000 shares of previously unissued common stock

Answer 9

SOLD : to be added + to common stock

Question 10

If exercise price of stock options is GREATER than the market price, then stocks are ____________

Answer 10

Anti-dilutive , the company can buyback more shares than it issues.

Dilutive scenario would be when market price is greater than Exercise price.

Question 11

Only dividends paid on Preferred stock are considered in calculation of EPS and not dividends paid on

Answer 11

DO NOT consider Dividends paid on COMMON STOCK

Question 12

Treasury stock sold to be added

Answer 12

True

Question 13

ISOs or Options - When exercise price is greater than avg market price

Answer 13

Anti-Dilutive

Question 14

Noncumulative - consider only declared dividends
Cumulative - deduct annual dividend (regardless if declared or paid), ignore dividends in arrears

Question 15

Basic and Diluted EPS for income from continuing operations must be reported on the income statement and are required to be reported on the face of the income statement.

Answer 15

True

Question 16

Stock dividends and stock splits are given retroactive treatment for all periods presented even when they occur after the end of the current year but prior to the issuance of the financial statements.

Answer 16

True

Question 17

Cumulative preferred stock dividends are always deducted from net income when determining NI available to stockholders, whether the dividends _______________

Answer 17

are declared or not.

Question 18

Basic and diluted EPS from income before discontinued operations may either be reported _____________

Answer 18

on the income statement or in the notes to the financial statements.

Question 19

Dividend payout ratio

Answer 19

Cash dividends/Net Income or DPS/EPS