Question 1

Smythe,Inc.has four potentially dilutive securities.Computation of the antidilution sequencing recorded the following:  What is the correct order of entry into the EPS computation?

Accepted Answer

The answer of Smythe,Inc.has four potentially dilutive securities.Computation of the...

Question 2

A security is antidilutive if decreases the diluted EPS below basic EPS.

Accepted Answer

The answer of A security is antidilutive if decreases the...

Question 3

When a company has a net loss from continuing operations,it should include ________.

Accepted Answer

When a company has a net loss from continuing operations, it means that the diluted EPS would be anti-dilutive for potentially dilutive securities. Therefore, no potentially dilutive securities should be included in diluted EPS.

Question 4

Medical Instruments reported $7,000,000 in net income for the current year.The company had $6,000,000 of 8% cumulative,non-convertible preferred stock outstanding all year,and issued,$10,000,000 of 7% convertible bonds issued on July 1.Each bond is convertible into 30 shares of common stock.Common shares outstanding at the beginning of the year was 1,000,000,but on December 15,the company declared a 2 for 1 stock split.Compute both basic and diluted EPS when the tax rate is 40%.
Instructions: Write the EPS formula.Show all computations used in your solution.

Accepted Answer

The answer of Medical Instruments reported $7,000,000 in net income...

Question 5

Ozarka Products reported $9,500,000 in net income for the current year.The company had $5,000,000 of 7% cumulative,preferred stock outstanding all year,along with,$10,000,000 of 6% bonds.Each bond had 4 detachable stock warrants and each warrant allowed the warrant holders to buy a share of stock for $60.The average share price for the year was $80.Common shares outstanding at the beginning of the year was 4,000,000,but on June 15,the company declared a a 10% stock dividend.Compute both basic and diluted EPS when the tax rate is 40%.
Instructions: Write the EPS formula.Show all computations used in your solution.

Accepted Answer

The answer of Ozarka Products reported $9,500,000 in net income...

Question 6

Realty1 has 40,000 outstanding stock options.Its net income for the year is $250,000.Each option allows the holder to purchase a share of stock for $14.The average market value of the shares for the year was $17.What is the incremental income per common share?

Accepted Answer

The answer of Realty1 has 40,000 outstanding stock options.Its net...

Question 7

Normally dilutive securities will become antidilutive if income from continuing operations is a net loss.

Accepted Answer

The answer of Normally dilutive securities will become antidilutive if...

Question 8

Edwards Corporation has three potentially dilutive securities.Computation of the antidilution sequencing recorded the following:  What is the correct order of entry into the EPS computation?

Accepted Answer

The answer of Edwards Corporation has three potentially dilutive securities.Computation...

Question 9

When computing diluted EPS,both the numerator and denominator are affected by ________.

Accepted Answer

The answer of When computing diluted EPS,both the numerator and...

Question 10

Colselo has 200,000 common share outstanding for the year and net income of $400,000.It has 20,000 stock options and 20,000 shares of $100,6% cumulative preferred stock,both of which were outstanding for the entire year.Compute basic and diluted EPS.

Accepted Answer

Basic EPS is calculated as (Net Income - Preferred Dividends) / Weighted Average Shares. Preferred dividends are $120,000 (20,000 shares * $100 * 6%). Basic EPS = ($400,000 - $120,000) / 200,000 = $1.40. Diluted EPS considers the potential conversion of stock options, which increases the denominator, resulting in a lower EPS.

Question 11

Antidilutive securities are excluded from the diluted EPS equation.

Accepted Answer

This statement is true. Antidilutive securities, such as stock options or warrants, are not included in the computation of diluted EPS because their inclusion would decrease the EPS figure. Diluted EPS is calculated by assuming the conversion or exercise of all dilutive securities, so only securities that would actually have a dilutive effect on EPS are included in the calculation.

Question 12

Potentially dilutive securities should not be included in dilutive EPS computations when net income from continuing operations is negative.

Accepted Answer

According to accounting standards, potentially dilutive securities, such as employee stock options, convertible bonds or preferred stock, should not be included in dilutive EPS computations when net income from continuing operations is negative, as their inclusion could result in a decrease in EPS and a potential misinterpretation of the company's performance.

Question 13

When a potentially dilutive security is present,a company must test the security to see if it is dilutive or antidilutive.Antidilutive securities occur when the diluted EPS is ________.

Accepted Answer

Antidilutive securities occur when the diluted EPS is greater than the basic EPS, meaning the addition of the potentially dilutive security would increase the company's earnings per share rather than decrease it.

Question 14

Carrolton,Inc.has four potentially dilutive securities.Computation of the antidilution sequencing recorded the following:  What is the correct order of entry into the EPS computation?

Accepted Answer

The answer of Carrolton,Inc.has four potentially dilutive securities.Computation of the...

Question 15

When there are multiple dilutive securities in a firm,the test for the sequence should be from ________.

Accepted Answer

The test for the sequence of multiple dilutive securities in a firm should be from most dilutive to least dilutive. This ensures that the impact of the most potentially dilutive securities is evaluated first before moving on to less dilutive securities. This approach also reduces the likelihood of overstating the potential dilutive impact of securities that are lower on the scale.

Question 16

Executrain has 50,000,7%,bonds outstanding for the second half of the year.Each $1,000 bond,sold July 1 at par,is convertible into 20 shares of common stock.The corporate tax rate is 40%.What is the incremental income per common share?

Accepted Answer

The answer of Executrain has 50,000,7%,bonds outstanding for the second...

Question 17

When computing diluted EPS,only the denominator is affected by ________.

Accepted Answer

The answer of When computing diluted EPS,only the denominator is...

Question 18

The order for antidilutive sequencing is ranking the least dilutive security first,ascending to the most dilutive security last.

Accepted Answer

The answer of The order for antidilutive sequencing is ranking...

Question 19

When options and warrants are in the money,they will be dilutive.

Accepted Answer

Options and warrants give their holders the right to buy shares at a predetermined price, which means that if the current market price is higher than the exercise price, they will be "in the money". This means that the holders can buy shares at a cheaper price and sell them in the market for a profit, leading to an increased number of common shares outstanding and a decrease in earnings per share. Therefore, options and warrants in the money are dilutive to existing shareholders.

Question 20

Ace Corporation has 10,000 shares of $100,6%,convertible preferred shares outstanding for the whole year.Each preferred share is convertible into 4 shares of common stock.What is the incremental income per common share?

Accepted Answer

The answer of Ace Corporation has 10,000 shares of $100,6%,convertible...

Quiz 21: Earnings Per Share

Smythe,Inc.has four potentially dilutive securities.Computation of the antidilution sequencing recorded the following: What is the correct order of entry into the EPS computation?