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

The $5,000 dividend paid to preferred shareholders will be subtracted from the numerator of the EPS calculation because it represents a distribution of earnings to preferred shareholders and not to common shareholders. The dividend will not impact the denominator of the EPS calculation because the number of shares outstanding remains the same. Since the preferred shares are noncumulative and nonconvertible, the dividend payment does not affect any previous or future dividends or conversion of the preferred shares. Hence, the correct answer is B.

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