Income Statement Items

Question 1

Basic Earnings Per Share (BEPS)

Answer 1

Net Income
- Taxes on Net Income
= Net Income After Taxes = NI * ( 1 - Tax rate)
- Preferred Stock Payment (#PS * Par Value * Rate)
= Income Available to Common Stock holders and participating preferred stock
/ weighted average of Common Stock holders and participating preferred stock = # of stocks outstanding * (Months outstanding / 12)
= Basic Earnings Per Share (BEPS)

Question 2

DEPS Dilutive

Answer 2

The numerator of the basic earnings per share (BEPS) ratio is income available to common shareholders. Declared dividends and accumulated dividends on preferred stock are removed from net income for the period to arrive at this amount. The undeclared but cumulative dividends on preferred stock equal

Question 3

When no dilutive PCS exists

Answer 3

DEPS = EPS

Question 4

Dealing with errors

Answer 4

Any error related to a prior period discovered after the statements are, or are available to be, used must be reported as an error correction by restating the prior-period statements. The carrying amounts of (1) assets, (2) liabilities, and (3) retained earnings at the beginning of the first period reported are adjusted for the cumulative effect of the error on the prior periods. Corrections of prior-period errors must not be included in net income. Thus, no adjustment to depreciation expense should be made for the prior-period errors. The adjustment would be reflected through a restatement of the prior-period statements and/or an adjusting entry to beginning retained earnings.