ACCT 312 EXAM 5?

In computing the loss per share of common stock, cumulative preferred dividends not earned should be

Added to the loss for the year.

The Fleming Corporation had 200,000 shares of common stock and 10,000 shares of cumulative, 6%, $100 par preferred stock outstanding during the year just ended. The preferred stock is convertible at the rate of three shares of common per share of preferred. For the year, the company had a $30,000 net loss from continuing operations. Fleming should report loss per share (diluted) for the year of

$(.45)

Carolina Company is a calendar-year entity with a complex capital structure. Carolina reported a loss on discontinued operations (net of tax) of $1,200,000 in the first quarter when its income before the loss was $1,000,000. The average market price of Carolina's common stock for the first quarter was $25, the shares outstanding at the beginning of the period equaled 300,000, and 12,000 shares were issued on March 1. At the beginning of the quarter, Carolina had outstanding $2,000,000 of 5% convertible bonds, with each $1,000 bond convertible into 10 shares of common stock. No bonds were converted. At the beginning of the quarter, Carolina also had outstanding 120,000 shares of preferred stock paying a dividend of $.10 per share at the end of each quarter and convertible to common stock on a one-to-one basis. Holders of 60,000 shares of preferred stock exercised their conversion privilege on February 1. Throughout the first quarter, warrants to buy 50,000 shares of Carolina's common stock for $28 per share were outstanding but unexercised. Carolina's tax rate was 30%. DEPS for net income or loss is

$(0.41)

Carolina Company is a calendar-year entity with a complex capital structure. Carolina reported a loss on discontinued operations (net of tax) of $1,200,000 in the first quarter when its income before the loss was $1,000,000. The average market price of Carolina's common stock for the first quarter was $25, the shares outstanding at the beginning of the period equaled 300,000, and 12,000 shares were issued on March 1. At the beginning of the quarter, Carolina had outstanding $2,000,000 of 5% convertible bonds, with each $1,000 bond convertible into 10 shares of common stock. No bonds were converted. At the beginning of the quarter, Carolina also had outstanding 120,000 shares of preferred stock paying a dividend of $.10 per share at the end of each quarter and convertible to common stock on a one-to-one basis. Holders of 60,000 shares of preferred stock exercised their conversion privilege on February 1. Throughout the first quarter, warrants to buy 50,000 shares of Carolina's common stock for $28 per share were outstanding but unexercised. Carolina's tax rate was 30%. BEPS for net income or loss is

$(0.60)

Carolina Company is a calendar-year entity with a complex capital structure. Carolina reported a loss on discontinued operations (net of tax) of $1,200,000 in the first quarter when its income before the loss was $1,000,000. The average market price of Carolina's common stock for the first quarter was $25, the shares outstanding at the beginning of the period equaled 300,000, and 12,000 shares were issued on March 1. At the beginning of the quarter, Carolina had outstanding $2,000,000 of 5% convertible bonds, with each $1,000 bond convertible into 10 shares of common stock. No bonds were converted. At the beginning of the quarter, Carolina also had outstanding 120,000 shares of preferred stock paying a dividend of $.10 per share at the end of each quarter and convertible to common stock on a one-to-one basis. Holders of 60,000 shares of preferred stock exercised their conversion privilege on February 1. Throughout the first quarter, warrants to buy 50,000 shares of Carolina's common stock for $28 per share were outstanding but unexercised. Carolina's tax rate was 30%. The difference between BEPS and DEPS for the loss on discontinued operations is

$.79

Poe Co. had 300,000 shares of common stock issued and outstanding at December 31, Year 1. No common stock was issued during Year 2. On January 1, Year 2, Poe issued 200,000 shares of nonconvertible preferred stock. During Year 2, Poe declared and paid $75,000 of cash dividends on the common stock and $60,000 on the preferred stock. Net income for the year ended December 31, Year 2, was $330,000. What should be Poe's Year 2 basic earnings per common share?

$0.90 (330,000-60,000)/300,000

A company reported net income available to common stockholders of $2,000,000 for the year ended December 31, Year 2. The company had 1,500,000 shares of common stock outstanding as of January 1, Year 2, and issued 500,000 additional shares of common stock on May 1, Year 2. What amount is the company's basic earnings per share for the year ended December 31, Year 2?

$1.09

At the beginning of the fiscal year, June 1, Year 3, Piotrowski Corporation had 80,000 shares of common stock outstanding. Also outstanding was $200,000 of 8% convertible bonds that had been issued at $1,000 par. The bonds were convertible into 20,000 shares of common stock; however, no bonds were converted during the year. The company's tax rate is 34%. Piotrowski's net income for the year was $107,000. Diluted earnings per share of Piotrowski common stock for the fiscal year ended May 31, Year 4, was

$1.18

Collins Corp.'s capital structure was as follows: December 31: Year 4 Year 5 Outstanding shares of stock: Common 100,000 100,000 Convertible preferred 10,000 10,000 9% convertible bonds $1,000,000 $1,000,000 During Year 5, Collins paid dividends of $3 per share on its preferred stock. The preferred shares are convertible into 20,000 shares of common stock, and the 9% bonds are convertible into 30,000 shares of common stock. If net income for Year 5 is $170,000, Collins should report DEPS as

$1.40

Bilco had 10,000 shares of common stock outstanding throughout Year 3. There was no potential dilution of earnings per share except that, in Year 2, Bilco agreed to issue 2,000 additional shares of its stock to the former shareholders of an acquired company if the acquired company's earnings for any of the 5 years, Year 3 through Year 8, exceed $5,000. Results of operations for Year 3 wereNet income of Bilco$10,000Net income of acquired company4,000Consolidated net income$14,000Diluted earnings per share for Year 3 on a consolidated basis is

$14,000 ÷ 10,000 = $1.40

During all of the year just ended, Littlefield, Inc., had outstanding 100,000 shares of common stock and 5,000 shares of noncumulative, $7 preferred stock. Each share of the latter is convertible into three shares of common. For the year, Littlefield had $230,000 income from continuing operations and a $575,000 loss on discontinued operations; no dividends were paid or declared. Littlefield should report diluted earnings (loss) per share (DEPS) for income from continuing operations and for net income (loss), respectively, of

$2.00 and $(3.00).

Collins Corp.'s capital structure was as follows: December 31: Year 4 Year 5 Outstanding shares of stock: Common 100,000 100,000 Convertible preferred 10,000 10,000 9% convertible bonds $1,000,000 $1,000,000 During Year 5, Collins paid dividends of $3 per share on its preferred stock. The preferred shares are convertible into 20,000 shares of common stock, and the 9% bonds are convertible into 30,000 shares of common stock. If net income for Year 5 is $245,000, Collins should report DEPS as

$2.04

Collins Corp.'s capital structure was as follows: December 31: Year 4 Year 5 Outstanding shares of stock: Common 100,000 100,000 Convertible preferred 10,000 10,000 9% convertible bonds $1,000,000 $1,000,000 During Year 5, Collins paid dividends of $3 per share on its preferred stock. The preferred shares are convertible into 20,000 shares of common stock, and the 9% bonds are convertible into 30,000 shares of common stock. Assume that the income tax rate is 30%. If net income for Year 5 is $350,000, Collins should report DEPS as

$2.75

On June 30, Year 2, Lomond, Inc., issued 20, $10,000, 7% bonds at par. Each bond was convertible into 200 shares of common stock. On January 1, Year 3, 10,000 shares of common stock were outstanding. The bondholders converted all the bonds on July 1, Year 3. The following amounts were reported in Lomond's income statement for the year ended December 31, Year 3: Revenues: $977,000 Operating expenses: (920,000) Interest on bonds: (7,000) Income before income tax: 50,000 Income tax at 30%: (15,000) Net income: $ 35,000 What amount should Lomond report as its Year 3 diluted earnings per share (DEPS)?

$2.85

Carolina Company is a calendar-year entity with a complex capital structure. Carolina reported a loss on discontinued operations (net of tax) of $1,200,000 in the first quarter when its income before the loss was $1,000,000. The average market price of Carolina's common stock for the first quarter was $25, the shares outstanding at the beginning of the period equaled 300,000, and 12,000 shares were issued on March 1. At the beginning of the quarter, Carolina had outstanding $2,000,000 of 5% convertible bonds, with each $1,000 bond convertible into 10 shares of common stock. No bonds were converted. At the beginning of the quarter, Carolina also had outstanding 120,000 shares of preferred stock paying a dividend of $.10 per share at the end of each quarter and convertible to common stock on a one-to-one basis. Holders of 60,000 shares of preferred stock exercised their conversion privilege on February 1. Throughout the first quarter, warrants to buy 50,000 shares of Carolina's common stock for $28 per share were outstanding but unexercised. Carolina's tax rate was 30%. The effect of assumed conversions on the numerator of the DEPS fraction is

$23,500

Smith Corporation had net income for the year of $101,504 and a simple capital structure consisting of the following common shares outstanding: Months Outstanding Number of Shares January - February 24,000 March - June 29,400 July - November 36,000 December 35,040 Total 124,440 Smith Corporation's basic earnings per share (rounded to the nearest cent) were

$3.20

A company's convertible debt securities are both a potential common stock and dilutive in determining earnings per share. What would be the effect of these securities on the calculation of basic earnings per share (BEPS) and dilutive earnings per share (DEPS)?

BEPS: No effect DEPS: Decrease

A company had the following outstanding shares as of January 1, Year 2: Preferred stock, $60 par, 4%, cumulative 10,000 shares Common stock, $3 par 50,000 shares On April 1, Year 2, the company sold 8,000 shares of previously unissued common stock. No dividends were in arrears on January 1, Year 2, and no dividends were declared or paid during Year 2. Net income for Year 2 totaled $236,000. What amount is basic earnings per share (BEPS) for the year ended December 31, Year 2?

$3.79

Weaver Company had 100,000 shares of common stock issued and outstanding at January 1. On July 1, Weaver issued a 10% stock dividend. Unexercised call options to purchase 20,000 shares of Weaver's common stock (adjusted for the stock dividend) at $20 per share were outstanding at the beginning and end of the year. The average market price of Weaver's common stock (which was not affected by the stock dividend) was $25 per share during the year. Net income for the year ended December 31 was $550,000. What should be Weaver's diluted earnings per share (DEPS) for the year?

$4.82

During the current year, Moore Corp. had the following two classes of stock issued and outstanding for the entire year: 100,000 shares of common stock, $1 par. 1,000 shares of 4% preferred stock, $100 par, convertible share for share into common stock. This stock is cumulative, whether or not earned, and no preferred dividends are in arrears. Moore's current-year net income was $900,000, and its income tax rate for the year was 30%. Diluted earnings per share (DEPS) for the current year are

$8.91

Jen Co. had 200,000 shares of common stock and 20,000 shares of 10%, $100 par value cumulative preferred stock. No dividends on common stock were declared during the year. Net income was $2,000,000. What was Jen's basic earnings per share?

$9.00

The following information is relevant to the computation of Chan Co.'s earnings per share to be disclosed on Chan's income statement for the year ending December 31: Net income for the year is $600,000. $5,000,000 face amount 10-year convertible bonds outstanding on January 1. The bonds were issued four years ago at a discount that is being amortized in the amount of $20,000 per year. The stated rate of interest on the bonds is 9%, and the bonds were issued to yield 10%. Each $1,000 bond is convertible into 20 shares of Chan's common stock. Chan's corporate income tax rate is 25%. Chan has no preferred stock outstanding and no other convertible securities. What amount should be used as the numerator in the fraction used to compute Chan's diluted earnings per share, assuming that the bonds are dilutive securities?

$952,500

Carolina Company is a calendar-year entity with a complex capital structure. Carolina reported a loss on discontinued operations (net of tax) of $1,200,000 in the first quarter when its income before the loss was $1,000,000. The average market price of Carolina's common stock for the first quarter was $25, the shares outstanding at the beginning of the period equaled 300,000, and 12,000 shares were issued on March 1. At the beginning of the quarter, Carolina had outstanding $2,000,000 of 5% convertible bonds, with each $1,000 bond convertible into 10 shares of common stock. No bonds were converted. At the beginning of the quarter, Carolina also had outstanding 120,000 shares of preferred stock paying a dividend of $.10 per share at the end of each quarter and convertible to common stock on a one-to-one basis. Holders of 60,000 shares of preferred stock exercised their conversion privilege on February 1. Throughout the first quarter, warrants to buy 50,000 shares of Carolina's common stock for $28 per share were outstanding but unexercised. Carolina's tax rate was 30%. The control number for determining whether potential common shares are dilutive or antidilutive is

$994,000

Colon Co. uses a calendar year for financial reporting. The company is authorized to issue 5 million shares of $10 par common stock. At no time has Colon issued any potentially dilutive securities. A two-for-one stock split of Colon's common stock took place on March 31, Year 4. Additional information is in the next column. Number of common shares issued and outstanding at 12/31/Year 1: 1,000,000 Shares issued as a result of a 10% stock dividend on 9/30/Year 2: 100,000 Shares issued for cash on 3/31/Year 3: 1,000,000 Number of common shares issued and outstanding at 12/31/Year 3: 2,100,000 The weighted-average number of common shares used in computing basic earnings per common share for Year 2 on the Year 3 comparative income statement was

1,100,000

A company had 400,000 shares of common stock issued and outstanding on January 1, Year 1, and had the following equity transactions for Year 1: Transactions Date Issued 200,000 new shares for cash April 1 Issued new shares as a result of a 3-for-1 stock split July 1 Purchased 300,000 shares treasury stock for cash October 1 What should the company use as the denominator for the calculation of basic earnings per share for year ended December 31, Year 1?

1,575,000

Chape Co. had the following information related to common and preferred shares during the year: Common shares outstanding, 1/1: 700,000 Common shares repurchased, 3/31: 20,000 Conversion of preferred shares, 6/30: 40,000 Common shares repurchased, 12/1: 36,000 Chape reported net income of $2,000,000 at December 31. What amount of shares should Chape use as the denominator in the computation of basic earnings per share?

702,000

Colon Co. uses a calendar year for financial reporting. The company is authorized to issue 5 million shares of $10 par common stock. At no time has Colon issued any potentially dilutive securities. A two-for-one stock split of Colon's common stock took place on March 31, Year 4. Additional information is in the next column. Number of common shares issued and outstanding at 12/31/Year 1: 1,000,000 Shares issued as a result of a 10% stock dividend on 9/30/Year 2: 100,000 Shares issued for cash on 3/31/Year 3: 1,000,000 Number of common shares issued and outstanding at 12/31/Year 3: 2,100,000 The weighted-average number of common shares used in computing BEPS for Year 3 on the Year 3 comparative income statement was

1,850,000

Colon Co. uses a calendar year for financial reporting. The company is authorized to issue 5 million shares of $10 par common stock. At no time has Colon issued any potentially dilutive securities. A two-for-one stock split of Colon's common stock took place on March 31, Year 4. Additional information is in the next column. Number of common shares issued and outstanding at 12/31/Year 1: 1,000,000 Shares issued as a result of a 10% stock dividend on 9/30/Year 2: 100,000 Shares issued for cash on 3/31/Year 3: 1,000,000 Number of common shares issued and outstanding at 12/31/Year 3: 2,100,000 The weighted-average number of common shares to be used in computing BEPS for Year 3 on the Year 4 comparative income statement is

3,700,000

Mann, Inc., had 300,000 shares of common stock issued and outstanding at January 1. On July 1, an additional 50,000 shares of common stock were issued for cash. Mann also had unexercised stock options to purchase 40,000 shares of common stock at $15 per share outstanding at the beginning and end of the year. The average market price of Mann's common stock was $20 during the year. What is the number of shares that should be used in computing diluted earnings per share (DEPS) for the year ended December 31?

335,000

Starks Corporation has 300,000 shares of common stock outstanding. The only other securities outstanding are 10,000 shares of 9% cumulative preferred stock with detachable warrants (10 warrants per preferred share). Each warrant provides for the purchase of one share of common stock at $72. For the year, net income was $1.6 million. During the year, the average market price of common stock was $125. The price at December 31 was $120. What number of shares should be used to determine diluted earnings per share?

342,400

Carolina Company is a calendar-year entity with a complex capital structure. Carolina reported a loss on discontinued operations (net of tax) of $1,200,000 in the first quarter when its income before the loss was $1,000,000. The average market price of Carolina's common stock for the first quarter was $25, the shares outstanding at the beginning of the period equaled 300,000, and 12,000 shares were issued on March 1. At the beginning of the quarter, Carolina had outstanding $2,000,000 of 5% convertible bonds, with each $1,000 bond convertible into 10 shares of common stock. No bonds were converted. At the beginning of the quarter, Carolina also had outstanding 120,000 shares of preferred stock paying a dividend of $.10 per share at the end of each quarter and convertible to common stock on a one-to-one basis. Holders of 60,000 shares of preferred stock exercised their conversion privilege on February 1. Throughout the first quarter, warrants to buy 50,000 shares of Carolina's common stock for $28 per share were outstanding but unexercised. Carolina's tax rate was 30%. The weighted-average number of shares used to calculate BEPS amounts for the first quarter is

344,000

Based on the stock transactions below, what is the weighted average number of shares outstanding as of December 31, Year 1, that should be used in the calculation of basic earnings per share in financial statements issued on March 1, Year 2? Date Transactions January 1, Year 1 Beginning balance 100,000 April 1, Year 1 Issued 30,000 shares for cash June 1, Year 1 50% stock dividend February 15, Year 2 2 for 1 stock split March 15, Year 2 Issued 40,000 shares for cash

367,500

Colon Co. uses a calendar year for financial reporting. The company is authorized to issue 5 million shares of $10 par common stock. At no time has Colon issued any potentially dilutive securities. A two-for-one stock split of Colon's common stock took place on March 31, Year 4. Additional information is in the next column. Number of common shares issued and outstanding at 12/31/Year 1: 1,000,000 Shares issued as a result of a 10% stock dividend on 9/30/Year 2: 100,000 Shares issued for cash on 3/31/Year 3: 1,000,000 Number of common shares issued and outstanding at 12/31/Year 3: 2,100,000 The weighted-average number of common shares to be used in computing BEPS for Year 4 on the Year 4 comparative income statement is

4,200,000

Carolina Company is a calendar-year entity with a complex capital structure. Carolina reported a loss on discontinued operations (net of tax) of $1,200,000 in the first quarter when its income before the loss was $1,000,000. The average market price of Carolina's common stock for the first quarter was $25, the shares outstanding at the beginning of the period equaled 300,000, and 12,000 shares were issued on March 1. At the beginning of the quarter, Carolina had outstanding $2,000,000 of 5% convertible bonds, with each $1,000 bond convertible into 10 shares of common stock. No bonds were converted. At the beginning of the quarter, Carolina also had outstanding 120,000 shares of preferred stock paying a dividend of $.10 per share at the end of each quarter and convertible to common stock on a one-to-one basis. Holders of 60,000 shares of preferred stock exercised their conversion privilege on February 1. Throughout the first quarter, warrants to buy 50,000 shares of Carolina's common stock for $28 per share were outstanding but unexercised. Carolina's tax rate was 30%. The weighted-average number of shares used to calculate DEPS amounts for the first quarter is

444,000

The following information pertains to Jet Corp.'s outstanding stock for the year just ended: Common stock, $5 par value: Shares outstanding, 1/1 20,000 2-for-1 stock split, 4/1 20,000 Shares issued, 7/1 10,000 Preferred stock, $10 par value, 5% cumulative: Shares outstanding, 1/1 4,000 What are the number of shares Jet should use to calculate basic earnings per share (BEPS) for the year just ended?

45,000

In determining earnings per share, interest expense, net of applicable income taxes, on dilutive convertible debt should be

Added back to net income for diluted earnings per share.

In computing diluted earnings per share (DEPS), the equivalent number of shares of convertible preferred stock is added as an adjustment to the denominator (number of shares outstanding). If the preferred stock is preferred as to dividends, which amount should be added as an adjustment to the numerator (earnings available to common shareholders)?

Annual preferred dividend.

In a diluted earnings-per-share computation, the effect of outstanding call options and warrants issued by the reporting entity is reflected by applying the treasury stock method. If the exercise price of these options or warrants exceeds the average market price, the computation would

Be antidilutive.

The if-converted method of computing diluted earnings per share (DEPS) amounts assumes conversion of convertible securities at the

Beginning of the earliest period reported (or at time of issuance, if later).

Under the treasury stock method, the DEPS calculation is based on the assumption that call options and warrants issued by the reporting entity and outstanding for the entire year were exercised at the

Beginning of the period and that the funds obtained thereby were used to purchase common stock at the average market price during the period.

How are partially paid stock subscriptions treated in the computation of EPS?

By use of the treasury stock method.

The senior accountant for Carlton Co., a public company with a complex capital structure, has just finished preparing Carlton's income statement for the current fiscal year. While reviewing the income statement, Carlton's finance director noticed that the earnings-per-share data has been omitted. What changes will have to be made to Carlton's income statement as a result of the omission of the earnings-per-share data?

Carlton's income statement will have to be revised to include the earnings-per-share data.

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

Common stock, preferred stock, and debt outstanding.

With regard to stock dividends and stock splits, current authoritative literature contains what general guideline for the computation of EPS?

If changes in common stock resulting from stock dividends, stock splits, or reverse splits have been consummated after the close of the period but before completion of the financial report, the per-share computations should be based on the new number of shares.

The per-share amount must be reported on the face of a public company's income statement for which of the following items?

Income from continuing operations.

Earnings-per-share data must be reported on the face of the income statement for

Income from continuing operations: Yes Cumulative effect of a change in accounting principle: No

In determining diluted earnings per share for a complex capital structure, which of the following is a potential common stock?

Nonconvertible Preferred Stock: No Stock Option: Yes

The nature of the adjustment for stock options in the calculation of diluted earnings per share can be described as

Pro forma because it indicates potential changes in the number of shares.

In computing earnings-per-share data, which of the following is true regarding the weighted-average computation of shares outstanding?

Reacquired shares should be excluded from the date of their acquisition.

When computing diluted earnings per share (DEPS), convertible securities that are potential common stock are

Recognized only if they are dilutive.

A firm has basic earnings per share of $1.29. If the tax rate is 30%, which of the following securities would be dilutive?

Seven percent convertible bonds, issued at par, with each $1,000 bond convertible into 40 shares of common stock.

The disclosure requirements for earnings per share do not apply to

Statements presented by wholly owned subsidiaries.

In calculating annual diluted earnings per share, which of the following should not be considered?

The amount of cash dividends declared on common shares.

When a company reports amounts for basic and diluted earnings per share,

They should be presented with equal prominence on the face of the income statement.

In determining diluted earnings per share (DEPS), a potential common stock (PCS) was antidilutive in Year 2 and dilutive in Year 3. The potential common stock would be included in the computation for

Year 2: No Year 3: Yes