Back at it again with the Depression

Sheffield Corp. had 1,000,000 shares of common stock issued and outstanding at December 31, 2017. On July 1, 2018 an additional 1,000,000 shares were issued for cash. Sheffield also had stock options outstanding at the beginning and end of 2018 which allow the holders to purchase 314000 shares of common stock at $21 per share. The average market price of Sheffield's common stock was $28 during 2018. The number of shares to be used in computing diluted earnings per share for 2018 is:

(1,000,000 × 6/12) + (2,000,000 × 6/12) + [((28 - 21) ÷ 28) × 314000] = 1578500

Which of the following is the formula for computing EPS

(Net income - Preferred dividends) ÷ Weighted average number of shares outstanding

Bramble Corp., has 4210000 shares of common stock outstanding on December 31, 2017. An additional 790000 shares of common stock were issued on April 1, 2018, and 404000 more on July 1, 2018. On October 1, 2018, Bramble issued 19200, $1,000 face value, 8% convertible bonds. Each bond is convertible into 20 shares of common stock. No bonds were converted into common stock in 2018. What is the number of shares to be used in computing basic earnings per share and diluted earnings per share, respectively?

4210000 + (790000 × 9/12) + (404000 × 6/12) = 5004500 (BEPS) 5004500 + (19200 × 20 × 3/12) = 5100500 (DEPS).

Bramble Corp. has 4780000 shares of common stock outstanding on December 31, 2017. An additional 202000 shares are issued on April 1, 2018, and 477000 more on September 1. On October 1, Bramble issued $6090000 of 8% convertible bonds. Each $1,000 bond is convertible into 40 shares of common stock. No bonds have been converted. The number of shares to be used in computing basic earnings per share and diluted earnings per share on December 31, 2018 is

4780000 + (202000 × 9/12) + (477000 × 4/12) = 5090500. 5090500 + [($6090000 ÷ $1,000) × 40 × 3/12] = 5151400.

In computing earnings per share, the equivalent number of shares of convertible preferred stock are added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is cumulative, which amount should then be added as an adjustment to the numerator (net earnings)?

Annual preferred dividend

Which earnings per share amounts are reported in a complex capital structure?

Basic and diluted EPS

For which of the following securities is an allocation of the sales proceeds necessary?

Bonds issued with detachable warrants

What effect will the acquisition of treasury stock have on stockholders' equity and earnings per share, respectively

Decrease and increase

With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure?

Ownership interest consisting solely of common stock.

Due to the importance of earnings per share information, it is required to be reported by all: Public Companies Nonpublic Companies

Public Companies: Yes Nonpublic Companies: Yes

At December 31, 2017 Marigold Corp. had 305000 shares of common stock and 9600 shares of 6%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2017 or 2018. On January 30, 2019, prior to the issuance of its financial statements for the year ended December 31, 2018, Marigold declared a 100% stock dividend on its common stock. Net income for 2018 was $1135000. In its 2018 financial statements, Marigold's 2018 earnings per common share should be (rounded to the nearest penny

[$1135000 - (9600 × $100 × 0.06)] ÷ (305000 × 2) = $1.77.

Sheffield Corp. had net income for the year of $720000 and a weighted average number of common shares outstanding during the period of 242000 shares. The company has a convertible bond issue outstanding. The bonds were issued four years ago at par ($3100000), carry a 7% interest rate, and are convertible into 50200 shares of common stock. The company has a 45% tax rate. Diluted earnings per share are (rounded to the nearest penny)

[$720000 + ($3100000 × 0.07 × 0.55)] ÷ (242000 + 50200) = $2.87.

Concord Corporation had net income for 2018 of $607000. The average number of shares outstanding for the period was 210000 shares. The average number of shares under outstanding options, at an option price of $31 per share is 12600 shares. The average market price of the common stock during the year was $36. What should Concord Corporation report for diluted earnings per share for the year ended 2018? (rounded to the nearest penny)

[($36 - $31) ÷ $36] × 12600 = 1750 $607000 ÷ (210000 + 1750) = $2.87.

On January 1, 2018, Sheffield Corp. had 393000 shares of its $2 par value common stock outstanding. On March 1, Sheffield sold an additional 759000 shares on the open market at $20 per share. Sheffield issued a 20% stock dividend on May 1. On August 1, Sheffield purchased 428000 shares and immediately retired the stock. On November 1, 601000 shares were sold for $25 per share. What is the weighted-average number of shares outstanding for 2018? (Rounded to the nearest dollar

[(393000 × 2 × 1.20) + (1152000 × 2 × 1.20) + (1382400 × 3) + (954400 × 3) + (1555400 × 2)] ÷ 12 = 1152433.

The following information is available for Bramble Corp.: January 1, 2018 Shares outstanding 3960000 April 1, 2018 Shares issued 644000 July 1, 2018 Treasury shares purchased 245000 October 1, 2018 Shares issued in a 100% stock dividend 4359000 The number of shares to be used in computing earnings per common share for 2018 is

[(3960000 × 3 × 2) + (4604000 × 3 × 2) + (4359000 × 3 × 2) + (8718000 × 3)] ÷ 12 = 8641000.

Compensation expense resulting from a compensatory stock option plan is generally

allocated to the periods benefited by the employee's required service

In applying the treasury stock method to determine the dilutive effect of stock options and warrants, the proceeds assumed to be received upon exercise of the options and warrants

are used to calculate the number of common shares repurchased at the average market price, when computing diluted earnings per share

When computing diluted earnings per share, convertible bonds are

assumed converted only if they are dilutive

A corporation issues bonds with detachable warrants. The amount to be recorded as paid-in capital is preferably

based on the relative market values of the two securities involved

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

be antidilutive

The conversion of bonds is most commonly recorded by the

book value method

The conversion of preferred stock is recorded by the

book value method.

In computations of weighted average of shares outstanding, when a stock dividend or stock split occurs, the additional shares are

considered outstanding at the beginning of the earliest year reported

In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be

deducted from net income whether declared or not

Dilutive convertible securities must be used in the computation of

diluted earnings per share only

When convertible debt is retired:

either a gain or a loss on retirement is recognized

An executive pays no taxes at the time of exercise in a(an)

incentive stock option plan.

The date on which to measure the compensation element in a stock option granted to a corporate employee ordinarily is the date on which the employee

is granted the option

Detachable stock warrants outstanding should be classified as

paid-in capital

Stock warrants outstanding should be classified as

paid-in capital-stock warrants

Assume there are two dilutive convertible securities. The one that should be used first to recalculate earnings per share is the security with the

smaller earnings per share adjustment.

If a company offers additional considerations to convertible bondholders in order to encourage conversion, it is called a(an):

sweetener.

On January 2, 2018, Vaughn Manufacturing issued at par $2000000 of 5% convertible bonds. Each $1000 bond is convertible into 10 shares of common stock. No bonds were converted during 2018. Vaughn had 209000 shares of common stock outstanding during 2018. Vaughn's 2018 net income was $904000 and the income tax rate was 25%. Vaughn's diluted earnings per share for 2018 would be (rounded to the nearest penny):

($2000000 ÷ $1000) × 10 = 20000 $2000000 × 0.05 × (1 - 0.25) = $75000 ($904000 + $75000) ÷ (209000 + 20000) = $4.28

Vaughn Manufacturing had 308000 shares of common stock issued and outstanding at December 31, 2017. No common stock was issued during 2018. On January 1, 2018, Vaughn issued 197000 shares of nonconvertible preferred stock. During 2018, Vaughn declared and paid $96000 cash dividends on the common stock and $77000 on the preferred stock. Net income for the year ended December 31, 2018 was $615000. What should be Vaughn's 2018 earnings per common share? (rounded to the nearest penny)

($615000 - $77000)/308000 = $1.75.