ch19b-5th_outline - 1 CHAPTER 19-Part B- EARNINGS PER SHARE...

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1 CHAPTER 19-Part B- EARNINGS PER SHARE Spiceland, Sepe, Nelson, and Tomassini - Fifth Edition SFAS 128 Revised January 2010 Learning Objectives 1. Calculate "basic" earnings per share (EPS) based strictly on the weighted average number of shares of common stock actually outstanding during the period. 2. Describe the characteristics of potentially dilutive securities and the rationale for their inclusion in EPS calculations. 3. Determine whether a potentially dilutive security is dilutive or antidilutive. 4. Determine whether a corporation has a simple capital structure that requires a single presentation of earnings per common share or a complex capital structure that requires a dual presentation consisting of basic EPS and diluted EPS. 5. Adjust EPS calculations for the dilutive effect of equity contracts (stock options and warrants and their equivalents) by the treasury stock method. 6. Adjust EPS calculations for the dilutive effect of contingently issuable shares of common stock. 7. Adjust EPS calculations for the dilutive effect of convertible securities using the if- converted method. 8. Determine the order of entry of dilutive securities into EPS calculations when there is more than one class of dilutive securities. 9. Calculate basic EPS and diluted EPS. 11. Identify the per share amounts and related disclosures that are required to be presented in the financial statements. 1
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CHAPTER OUTLINE I. Earnings per share (EPS) are computed only for common stock. EPS are required to be presented on the face of the income statement for all but closely held corporations. II. Dilutive Securities - Potentially dilutive securities include convertible preferred stocks, convertible bonds, options, warrants, etc. and are securities which will lower EPS by increasing the number of shares outstanding if we assume that they are converted or exercised. (EPS computations involve "as if" accounting.) In contrast, antidilutive securities increase EPS or decrease loss per share. III. Capital Structure - EPS presentation on the income statement depends on the type of capital structure of a corporation; i.e., whether or not the corporation has any potentially dilutive securities. A. Simple Capital Structure - stockholders' equity consists only of common stock and includes no potentially dilutive securities. EPS is computed as follows for a corporation with simple capital structure (Basic
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ch19b-5th_outline - 1 CHAPTER 19-Part B- EARNINGS PER SHARE...

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