handout for class 5

# handout for class 5 - Basic EPS=\$1.8 Interests/Dividends...

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Handout #5 for Bus321-Intermediate Accounting II Professor: Yasheng Chen Notes for BUS321 Class 5: Accounting for Option & Earnings per Share (EPS) Learning objectives: 1. Understand when and how EPS is required to be presented. 2. Calculate basic EPS 3. Calculate diluted EPS for firms with complex capital structure, e.g. convertible debts, convertible preferred shares, written put / call options. Key learning points: 1. EPS disclosure requirements: 2. Basic EPS calculation: a. Preferred Share Dividends ---Cumulative vs. Non-cumulative b. Weighted Average Number of Common Shares ---Stock Split & Stock Dividends 3. If-converted method Step1: anti-dilutive test Anti-dilutive Test ( Basic EPS=\$1.8

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Unformatted text preview: Basic EPS=\$1.8 ) Interests/Dividends Saved Number of Shares Increased Incremental EPS Anti-dilutive? 10% Bond issued in a prior year Anti-dilutive 6% Bond issued on April 1 Dilutive \$3 Preferred Shares issued on April 1 Dilutive Step 2: Re-calculate Income available to common shareholders 1 Handout #5 for Bus321-Intermediate Accounting II Professor: Yasheng Chen Step 3: Re-calculate weighted average number of shares Step 4: Calculate Dilutive EPS 4. Treasure stock method i. When will written call option become dilutive? ii. Assumption: a. b. 5. Reverse Treasure stock method i. When will written put option become dilutive? ii. Assumption: a. b. 2...
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