Question

In: Accounting

In computing earnings per share, the number of shares from convertible preferred stock are added to...

In computing earnings per share, the number of shares from convertible preferred stock are added to the denominator. If the preferred stock is cumulative, what amount should then be added to the numerator?

     a. Annual preferred dividend                      b. Annual preferred dividend times (one minus the tax rate)

c. Annual preferred dividend times the tax rate        d. Annual preferred dividend divided by the tax rate

14. All of the following would reduce the balance in retained earnings EXCEPT:

a. small stock dividends.                   b. acquisition of treasury stock.

c. large stock dividends.                    d. cash dividends.

15. Dilutive convertible securities must be used in the computation of

      a. BASIC earnings per share.                         b. DILUTED earnings per share whether or not converted.

      c. BOTH basic and diluted earnings per share.   d. DILUTED earnings per share only if converted.

16. Manning Company issued 1,000 shares of its $5 par value common stock having a market value of $72 per share and 200 shares of its $100 par value preferred stock having a market value of $120 per share for a lump sum of $90,000. How much of the proceeds would be allocated to the common stock?

     a. $76,000                            b. $71,500                    c. $18,000                     d. $67,500

Solutions

Expert Solution

13) The correct option is a. Annual preferred dividend

Since annual preferred dividend is paid from the income after tax. The tax effect is nil on Preferred Dividend.

After conversion into common stock the preferred dividend will become the part of earnings attributable to common stockholders. Hence the Preferred Dividend amount is added to the numerator.

14) the correct option is b. acquisition of treasury stock

Since acquisition of treasury stock is purchased out of cash. It will not affect the Retained Earnings part. It is shown as a separate line of item.

15) the correct option is b. DILUTED earnings per share whether or not converted

It is used only in calculation of Diluted Earnings Per Share.

Dilutive Securities are securities that are not common stock in form, but allow the owner to obtain common stock upon exercise of an option or a conversion privilege. Hence it is used only in calculation of Diluted EPS

16)

The proceeds from common stock = Common Stock shares issued 1,000 Shares x Market Value $72 = $72,000

The Proceeds from Preferred Stock = 200 Shares x Market Price $120 = $24,000

Total Proceeds that would be received = 24,000 + 72,000 = $96,000

For both the stock lum sum amount = $90,000

WE need to proportionate the proceeds in accordance with the original proceeds value.

The proceeds allocated to the common stock = Lum Sum amount $90,000 / Total Proceeds that would be received $96,000 x Proceeds from Common Stock $72,000

= $67,500

Hence, the correct option is d. $67,500

Hope the above calculations, working and explanations are clear to you and help you in understanding the concept of question.... please rate my answer...in case any doubt, post a comment and I will try to resolve the doubt ASAP…thank you

ekkarill92 answered 1 year ago
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