Reading 32: Understanding the Income Statement - LOS h, (Pa black, equity, accounts, following, class

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1.Zichron, Inc., had the following equity accounts on December 31:

§          Common stock:  20,000 shares

§          Preferred stock A:  10,000 shares convertible into common on a 2 for 1 basis, dividend of $40,000 was declared during the year

§          Preferred stock B:  10,000 shares, convertible to common on a 4 for 1 basis, dividend of $5,000 was declared during the year

§          The company reported net income of $120,000 and paid a $20,000 dividend to its common shareholders.

What are the basic earnings per share reported for the year?

A)   $2.75.

B)   $1.36.

C)   $3.75.

D)   $2.00.

2.What are the diluted earnings per share reported for the year?

A)   $3.00.

B)   $1.50.

C)   $1.33.

D)   $2.00.

3.A firm has a weighted average number of 20,000 common shares selling at an average of $10 throughout the year and 11,000, 10 percent, $100 par value preferred shares. If the firm earns $210,000 after taxes, what is its Basic EPS?

A)   $7.50 / share.

B)   $5.00 / share.

C)   $10.00 / share.

D)   $10.50 / share.

4.Washington, Inc.’s stock transactions during the year 2004 were as follows:

January 1	720,000 shares issued and outstanding
May 1	2 for 1 stock split occurred

What was Washington’s weighted average number of shares outstanding during 2004, for earnings per share (EPS) computation purposes?

A)   1,440,000.

B)   1,500,000.

C)   1,740,000.

D)   1,666,667.

5.As of the beginning of the year HalfPass Productions, Inc., had the following complex capital structure:

§       3,000,000 common shares outstanding.

§       175,000 options with an exercise price of $22.

§       250,000 warrants with an exercise price of $18.

During the year:

§       On March 1, the company issued 100,000 new shares of common stock.

§       On July 1, the board of directors declared a 15% stock dividend.

§       On September 1, the company repurchased 125,000 shares.

§       Net income (after-tax) for the year was $7,500,000.

§       The company paid common dividends of $2,750,000 and preferred dividends of $1,300,000.

§       The average market price for the common stock was $25 per share.

Assume the fiscal year is January 1 through December 31. At year end, HalfPass’s basic EPS is closest to:

A)   $1.66.

B)   $1.69.

C)   $1.77.

D)   $1.94.