71287628-Chapter-19-Solution - Use the following to answer...

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Use the following to answer questions 21-25: 21-25. Listed below are ten terms followed by a list of phrases that describe or characterize five of the terms. Match each phrase with the correct term by placing the letter designating the best term in the space provided by the phrase. Terms: A. Antidilutive security B. Basic EPS C. Convertible bonds D. Dividend payout ratio E. Earnings available to common shareholders F. Issuance of new shares G. Multiple convertible securities H. Options, rights, and warrants I. Preferred dividends J. Preferred dividends Phrases: 21. ____ Need to be ranked high to low in terms of dilutive effect. 22. ____ No dilution considered. 23. ____ Tends to be low for growth companies. 24. ____ The numerator in the EPS formula. 25. ____ The treasury stock method is used. Answer: 21-G; 22-B; 23-D; 24-E; 25-H Use the following to answer questions 87-88: During 2006, Falwell Inc. had 500,000 shares of common stock and 50,000 shares of 6% cumulative preferred stock outstanding. The preferred stock has a par value of $100 per share. Falwell did not declare or pay any dividends during 2006. Falwell's net income for the year ended December 31, 2006, was $2.5 million. The income tax rate is 40%. Falwell granted 10,000 stock options to its executives on January 1 of this year. Each option gives its holder the right to buy 20 shares of common stock at an exercise price of $29 per share. The market price of the common stock averaged $30 per share during 2006, and the price on 12/31/06 was $33. 87. What is Falwell's basic earnings per share for 2006, rounded to the nearest cent? A) $3.14 B) $4.40 C) $5.00 D) None of the above is correct. Answer: B Rationale:
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net preferred income dividends $2,500,000 - (50,000 x $100 x 6%) $2,200,000 —————————————————— = ——————— = $4.40/share 500,000 500,000 shares common shares 88. What is Falwell's diluted earnings per share for 2006, rounded to the nearest cent? A) $3.14 B) $4.90 C) $4.34 D) Cannot determine from the given information. Answer: C Rationale: The computation ($ in 000's) is as follows: net preferred income dividends $2,500,000 - (50,000 x $100 x 6%) $2,200,000 —————————————————— = ——————— = $4.34/share 500,000 + 6,667 * 506,667 shares common shares net shares added from on 1/1/06 conversion of options *10,000 options x 20 shares/option = 200,000 shares; Proceeds = 200,000 x $29 = $5,800,000 $5,800,000 / $30 per share = 193,333 shares of treasury stock Net shares added = 200,000 - 193,444 = 6,667 43. ABC declared and paid cash dividends in January of the current year to its common shareholders. The dividend: A) Will be added to the numerator of the earnings per share fraction for the current year. B)
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71287628-Chapter-19-Solution - Use the following to answer...

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