ACCT 304 Ch. 20

When computing diluted EPS, only the denominator is affected by ________. A) warrants and options B) convertible preferred stock C) preferred stock D) convertible bonds

A) warrants and options

When a potentially dilutive security is present, a company must test the security to see if it is dilutive or anti-dilutive. Anti-dilutive securities occur when the diluted EPS is ________. A) greater than the basic EPS B) less than the basic EPS C) the same as basic EPS D) either the same or less than basic EPS

A) greater than the basic EPS

When there are multiple dilutive securities in a firm, the test for the sequence should be from ________. A) most dilutive to least dilutive B) least dilutive to most dilutive C) convertibles first and warrants last D) convertibles debt first and options last

A) most dilutive to least dilutive

Stock options exercisable at $20 each to obtain 60,000 shares of common stock were outstanding during a period when the average market price of the common stock was $25. Application of the treasury stock method for the assumed exercise of these stock options in computing diluted earnings per share will increase the weighted average number of outstanding shares by A) 60,000. B) 48,000. C) 12,000. D) 15,000.

C) 12,000.

In the diluted earnings per share computation, the treasury stock method is used for options and warrants to reflect assumed reacquisition of common stock at the average market price during the period. If the exercise price of the options or warrants exceeds the average market price, the computation would A) fairly present diluted earnings per share on a prospective basis. B) fairly present the maximum potential dilution of diluted earnings per share on a prospective basis. C) reflect the excess of the number of shares assumed issued over the number of shares assumed reacquired as the potential dilution of earnings per share. D) be anti-dilutive.

D) be anti-dilutive.

When computing diluted EPS, both the numerator and denominator are affected by ________. A) stock options B) stock warrants C) preferred stock D) convertible bonds

D) convertible bonds

Carrolton, Inc. has four potentially dilutive securities. Computation of the anti-dilution sequencing recorded the following: Security Increase in Income Increase in Common Shares Convertible Preferred Stock $30,000 10,000 Stock Warrants $0 5,000 Stock Options $0 (3,000) Convertible Bonds $15,000 9,000 What is the correct order of entry into the EPS computation? A) convertible preferred stock, stock warrants, convertible bonds B) stock warrants, convertible preferred stock, convertible bonds C) convertible bonds, convertible preferred stock, stock warrants D) stock warrants, convertible bonds, convertible preferred stock

D) stock warrants, convertible bonds, convertible preferred stock