ABC paid $5,000 in dividends to its preferred shareholders.The 5 percent preferred shares (10,000 shares outstanding)are nonconvertible and noncumulative.The $5,000 dividend:

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Quizplus · Accepted Answer

Dividends paid to preferred shareholders are subtracted from the net income in the numerator of the EPS (Earnings Per Share) calculation because they are not available to common shareholders. This ensures that the EPS reflects the earnings available to common shareholders only.

ABC Paid $5,000 in Dividends to Its Preferred Shareholders