F7_T3_lecture - F7 T3 TURE F Financial Instruments...

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Unformatted text preview: F7 T3 TURE F? : Financial Instruments, Stockholders' Equity. and Cash Flows (Topic 3 Hymn «I Jration 3.: ?. CPA-0120i] On December 1 of the current year. Clay Co. declared and issued a 6% stock dividend on its 100.000 shares of outstanding common stock. There was no other common stock activa during the year. What number of shares should Clay use in determining basic earnings per share forthe current year? :Z'fi a. 100.000 1“: b. 100.500 3:31 a c. 106000 c154 __ 0139 d. 106.000 .305? 1‘». Class Question Answer )3? CLASS QUESTION ANSWER -Fl_ ?. CPA-01200 Choice “d” is correct. A 6% stock dividend equals 6.000 shares with a total of 106.000 shares outstanding afterthe distribution ofthe dividend. Stock dividends and stock splits require restatement of the shares outstanding before the stock dividend or stock split. Thus. the stock dividend would be treate as if it had occurred at the beginning ofthe fiscal year. Choice "a" is incorrect. This calculation ignores the fact that 6.000 shares were issued due to the stock dividend. Choice "b" is incorrect. In this calculation. the stock dividend shares are weighted forthe one month in _ which they were outstanding. However. stock dividends are treated as ifthey had occurred at the “ma beginning of the fiscal year. 04:10 .maining Choice “c” is incorrect. Stock dividends are treated as ifthey had occurred at the beginning of the fiscal year. Cl PM TURE F? : Financial Instruments, Stockholders' Equity, and Cash Flows (Topic 3 “ku K Jration 3.3: 3. CPA-01193 Ute Co. had the following capital structure during Year 1 and Year 2: Preferred stock, $10 per, 4% cumulative, 25,000 shares issued and outstanding $250,000 Common stock, $5 per, 200,000 shares issued and outstanding 1,000,000 Ute reported net income of $500,000 for the year ended December 31, Year 2. Ute paid no preferred f“. dividends during Year 1 and paid $10,000 in preferred dividends during Year 2. In its December 31, Year 2, income statement, what amount should Ute report as basic earnings per share? a. $2.42 b. $2.45 JR. Class Question Answer CLASS QUESTION ANSWER 0 3. CPA-01190 Choice "b" is correct. $2.45 earnings per share. Year 1 Year 2 Net income ? $ 500,000 Less: Cumulative preferred Stock dividend "requirement" ($10 par x 25,000 shs x 4%} [10 000) {10,000} “ma Income available to common shares 400,000 02.35 Divide by average common shares DIS + 200,000 “aiming Basic earnings per common share $ 2 ii Note; Since the preferred stock dividends are cumulative, when they are declared or paid is not relevant I'l PM TURE F? : Financial Instruments, Stockholders' Equity, and Cash Flows (Topic 3 Hm « Jretion 3.3: 9. CPA-01199 West Bo. had earnings per share of $15.00 forthe current year before considering the effects of any convertible securities. No conversion or exercise of convertible securities occurred during the vear. However, possible conversion of convertible bonds would have reduced earnings per share by $0.?5. The effect of possible exercise of common stock options would have increased earnings per share by $0.10. What amount should West report as dituted earnings per share for the current year? if"; a. moon LT; b. 514.35 iii-fl o. $14.25 o. s1s.1o JR. Class Question Answer CLASS QUESTION ANSWER it 9. CPA-01199 Choice "c" is correct. $14.25 diluted earnings per share. Basic Diluted EPS EPS EPS before the effect of any convertibles $15.00 $15.00 Possible conversion of bonds -- {.75} Diluted earnings per share $350.0 53.4.25 Time UM? Note: The possible exercise of common stock options would increase EPS by $0.10, so they are not use Training due to the anti-dilution ruie. Each potentially dilutive security is considered separater for its dilutive effect. I'l PM ...
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