[2010]Session 8-Reading 32: Understanding the Income Statement LOS G习题精选

Moulding Company’s net income was $13,820,000 with 2,600,000 shares outstanding. The average share price for the year was $58.00. Moulding had 10,000 options to purchase 10 shares each at $40 per share outstanding the entire year. Moulding Company’s diluted earnings per share are closest to:

A) $3.71.

B) $5.25.

C) $5.32.

Valuable Corp.’s basic earnings per share (EPS) and diluted EPS for the year are different. Given this information, which of the following statements is least accurate?

A) Diluted EPS is less than basic EPS.

B) Valuable Corp.'s capital structure may include both options and warrants.

C) All of Valuable's potentially dilutive securities are antidilutive.

An analyst compiled the following information from Hampshire, Inc.’s financial activities in the most recent year:

• Net income was $2,800,000.
• 100,000 shares of common stock were outstanding on January 1.
• The average market price per share for the year was $250.
• 10,000 shares of 6%, $1,000 par value preferred shares were outstanding the entire year.
• 10,000 warrants, which allow the holder to purchase 10 shares of common stock for each warrant held at a price of $150 per common share, were outstanding the entire year.
• 30,000 shares of common stock were issued on September 1.

Hampshire, Inc.’s diluted earnings per share are closest to:

A) $18.38.

B) $14.67.

C) $20.00.

Selected information from Feder Corp.’s financial activities for the year is as follows:

• Net income was $7,650,000.

• 1,100,000 shares of common stock were outstanding on January 1.

• The average market price per share was $62.

• Dividends were paid during the year.

• The tax rate was 40%.

• 10,000 shares of 6% $1,000 par value preferred shares convertible into common shares at a rate of 20 common shares for each preferred share were outstanding for the entire year.

• 70,000 options, which allow the holder to purchase 10 shares of common stock at an exercise price of $50 per common share, were outstanding the entire year.

Feder Corp.’s diluted earnings per share (EPS) was closest to:

A) $5.87.

B) $5.32.

C) $4.91.

In applying the treasury stock method, if warrants allow the purchase of 1 million shares at $42 per share when the average price is $56 per share, how many shares will be added to the firm’s weighted average number of shares outstanding?

A) 1,000,000.

B) 420,000.

C) 250,000.

Cassie Hamilton is an analyst with Pacers Worldwide, an investment banking firm. She just received the following information (as of year-end) for Trotters Diversified:

• Average common shares outstanding of 5.0 million.
• Average market price for common stock of $35.00 per share.
• Net income of $9.0 million.
• Common stock dividends paid of $1.2 million.
• Preferred dividends paid (on convertible preferred stock noted below) of $1.5 million.
• Tax rate of 40%.
• 500,000 shares of cumulative convertible preferred stock with $30 par value and 10% dividend. Each preferred share is convertible into 5 common shares.
• 10,000 convertible $1,000 par bonds with a 6.0% coupon, each convertible into 8 shares of common stock.
• 400,000 stock options recently issued with an exercise price of $32.00 per share.

In the denominator of the basic EPS calculation, Hamilton should include how many shares related to the convertible bonds?

A) 80,000.

B) 0.

C) 10,000.

A) $1.23.

B) $1.19.

C) $1.50.

Empire Watch Company’s basic earnings per share (EPS) and diluted earnings per share (Diluted EPS) were both $2.00 in 2004, in 2005 basic EPS was $2.50 but Diluted EPS was $2.25. The fact that basic EPS and diluted EPS were the same in 2004 and different in 2005 could possibly be explained by any of the following EXCEPT:

A) the average price per share of Empire Watch's common stock was higher in 2005.

B) Empire Watch issued convertible bonds in 2005.

C) Empire Watch purchased its own stock and held it as treasury stock in 2005.

All of the following are considered a potentially dilutive securities EXCEPT:

A) preferred stock.

B) stock options.

C) warrants.

Examples of potentially dilutive securities include all of the following EXCEPT:

A) non-convertible bonds.

B) convertible preferred stock.

C) options.

When calculating earnings per share (EPS) for firms with complex capital structures, stock options are ordinarily considered to be:

A) antidilutive securities.

B) derivative securities.

C) potentially dilutive securities.

When calculating earnings per share (EPS) for firms with complex capital structures, convertible bonds are ordinarily considered to be:

A) embedded debt securities.

B) potentially dilutive securities.

C) antidilutive securities.

When calculating earnings per share (EPS) for firms with complex capital structures, convertible preferred stock is ordinarily considered to be a:

A) non-equity security.

B) antidilutive security.

C) potentially dilutive security.

Which of the following statements regarding the treasury stock method of computing diluted shares is least accurate? The treasury stock method:

A) assumes that the hypothetical funds received by the company from the exercise of the options are used to sell shares of the company’s common stock in the market at the average market price.

B) is used when the exercise price of the option is less than the average market price.

C) increases the total number of shares by less than the number that the exercise of the options would create.

Which of the following statements is TRUE regarding the reporting of earnings per share (EPS)?

A) The EPS when antidilutive securities are converted into shares of common stock is less than basic EPS.

B) Basic EPS can be less than diluted EPS.

C) Diluted EPS must be less than or equal to basic EPS.

Selected information from Doors, Inc.’s financial activities in the year 2005 included the following:

• Net income was $372,000.

• 100,000 shares of common stock were outstanding on January 1.

• The average market price per share was $18 in 2005.

• Dividends were paid in 2005.

• 2,000, 6 percent $1,000 par value convertible bonds, which are convertible at a ratio of 25 shares for each bond, were outstanding the entire year.

• Doors, Inc.’s tax rate is 40%.

Doors, Inc.’s diluted earnings per share (Diluted EPS) for 2005 was closest to:

A) $2.96.

B) $3.72.

C) $3.28.

Selected information from Gerrard, Inc.’s financial activities in the most recent year was as follows:

• Net income was $330,000.

• The tax rate was 40%.

• 700,000 shares of common stock were outstanding on January 1.

• The average market price per share for the year was $6.

• Dividends were paid during the year.

• 2,000 shares of 8% $500 par value preferred shares, convertible into common shares at a rate of 200 common shares for each preferred share, were outstanding for the entire year.

• 200,000 shares of common stock were issued on March 1.

Gerrard, Inc.’s diluted earnings per share (diluted EPS) was closest to:

A) $0.197.

B) $0.261.

C) $0.289.

Protocol, Inc.’s net income for 2005 was $4,800,000. Protocol had 800,000 shares of common stock outstanding for the entire year. The tax rate was 40 percent. The average share price in 2005 was $37.00. Protocol had 5,000 8 percent $1,000 par value convertible bonds that were issued in 2004. Each bond is convertible into 25 shares of common stock. Protocol, Inc.’s basic and diluted earnings per share for 2005 were closest to:

A) $6.00 $5.45

B) $5.45 $5.19

C) $6.00 $4.92

Which of the following statements regarding basic and diluted earnings per share (EPS) is most accurate?

A) Neither basic nor diluted EPS considers antidilutive securities in its computation.

B) To calculate diluted EPS, use net income less preferred dividends in the numerator.

C) If diluted EPS is less than basic EPS then the convertible securities are said to be antidilutive.

Which of the following statements regarding basic and diluted EPS is least accurate?

A) A simple capital structure contains no potentially dilutive securities.

B) Dilutive securities decrease EPS if they are exercised or converted to common stock.

C) Antidilutive securities decrease EPS if they are exercised or converted.

Orange Company’s net income for 2004 was $7,600,000 with 2,000,000 shares outstanding. The average share price in 2004 was $55. Orange had 10,000 shares of eight percent $1,000 par value convertible preferred stock outstanding since 2003. Each preferred share was convertible into 20 shares of common stock. Orange Company’s diluted earnings per share (Diluted EPS) for 2004 is closest to:

A) $3.80.

B) $3.45.

C) $3.40.

The primary difference between basic EPS and diluted EPS is that:

A) proprietors and partners report basic EPS but corporations report diluted EPS.

B) extraordinary items and discontinued operations are omitted from basic EPS but included in diluted EPS.

C) diluted EPS includes the potential effects of convertible securities while basic EPS does not.

During 2005, Advantage paid dividends of $3 per share on its preferred stock. The preferred shares are convertible into 20,000 shares of common stock. The 8% bonds are convertible into 30,000 shares of common stock. Net income for 2005 was $850,000. Assume the income tax rate is 30%.

Calculate Advantage's basic and diluted earnings per share (EPS) for 2005.

Basic EPS

Diluted EPS

A) $6.31 $5.66

B) $7.45 $6.26

C) $7.45 $5.66

Securities that would decrease earnings per share (EPS) if they were exercised and converted to common stock are called:

A) dilutive securities.

B) synthetic securities.

C) antidilutive securities.

Securities that improve basic per share earnings, or reduce per share losses, if they are exercised or converted to common stock are called:

A) dilutive securities.

B) antidilutive securities.

C) embedded securities.

Which of the following statements about the earnings per share calculation are most accurate?

A) When calculating diluted EPS you must add the shares created from the conversion of the bonds to the denominator and the interest expense times the tax rate to the numerator.

B) If the diluted EPS is less than the basic EPS, then the diluted EPS is said to be anti-dilutive.

C) None of these choices are correct.

Anti-dilutive securities should:

A) be used in calculating basic EPS but not diluted EPS.

B) be used in calculating diluted EPS but not basic EPS.

C) not be used in calculating basic or diluted EPS.

How will dilutive securities affect earnings per share (EPS) when determining diluted earnings per share?

A) Decrease EPS.

B) Increase EPS.

C) Either decrease or increase EPS depending upon if the security is dilutive or antidilutive.

In calculating the numerator for diluted Earnings Per Share, the interest on convertible debt is:

A) subtracted from earnings available to common shareholders after an adjustment for taxes.

B) added to earnings available to common shareholders after an adjustment for taxes.

C) added to earnings available to common shareholders.

An analyst has gathered the following information about Artcraft, Inc. for the year:

• Net income of $30,000.
• 5,000 shares of common stock and 500 shares of 8%, $90 par convertible preferred stock outstanding during the whole year.
• Each share of convertible preferred can be converted into 4 shares of common stock.
• Last year, Artcraft issued at par, $60,000 total face value of 6.0% convertible bonds, with each of the 60 bonds convertible into 110 shares of the Artcraft common stock.

If Artcraft's effective tax rate is 40%, what will Artcraft report as diluted earnings per share (EPS)?

A) $3.12.

B) $2.36.

C) $3.37.

In calculating the numerator for diluted earnings per share, the dividends on convertible preferred stock are:

A) added to earnings available to common shareholders with an adjustment for taxes.

B) subtracted from earnings available to common shareholders without an adjustment for taxes.

C) added to earnings available to common shareholders without an adjustment for taxes.

An analyst has gathered the following information about Barnstabur, Inc., for the year:

• Reported net income of $30,000.
• 5,000 shares of common stock and 2,000 shares of 8%, $90 par preferred stock outstanding during the whole year.
• During the year, Barnstabur issued at par, $60,000 of 6.0% convertible bonds, with each of the 60 bonds convertible into 110 shares of the Barnstabur common stock.

If Barnstabur’s effective tax rate is 40%, what will Barnstabur report for diluted earnings per share (EPS)?

A) $2.36.

B) $1.66.

C) $1.53.

Selected information from Baltimore Corp’s financial activities in the year 2004 is as follows:

• Net income was $4,200,000 .

• 750,000 shares of common stock were outstanding on January 1.

• The average market price per share was $50 in 2004.

• Dividends were paid in 2004.

10,000 warrants, which allowed the holder to purchase 10 shares of common stock for each warrant held at a price of $40 per common share, were outstanding the entire year. 

Baltimore’s diluted earnings per share (Diluted EPS) for 2004 is closest to:

A) $5.60.

B) $5.45.

C) $4.94.

Quad Associates, Inc.’s net income for 2005 was $892,000 with 400,000 shares outstanding. The tax rate was 40 percent. Quad had 2,000 six percent $1,000 par value convertible bonds that were issued in 2004. Each bond was convertible into 40 shares of common stock. Quad, Inc.’s diluted earnings per share (Diluted EPS) for 2005 was closest to:

A) $2.11.

B) $2.01.

C) $2.23.

Kendall Company’s net income for 20X4 is $830,000 with 200,000 shares outstanding. Kendall has 1,000 6% convertible bonds (each bond $1,000 face value and convertible into 20 common shares) outstanding for the entire year. Kendall’s tax rate is 40%. What is Kendall Company’s diluted earnings per share for 20X4?

A) $3.77.

B) $4.15.

C) $3.94.

Selected information from Caledonia, Inc.’s financial activities in the year 20X6 is as follows:

• Net income = $460,000.
• 2,300,000 shares of common stock were outstanding on January 1.
• The average market price per share was $2 and the year-end stock price was $1.50.
• 1,000 shares of 8%, $1,000 par value preferred shares were outstanding on January 1. Preferred dividends were paid in 20X6.
• 10,000 warrants, each of which allows the holder to purchase 100 shares of common stock at an exercise price of $1.50 per common share, were outstanding the entire year.

Caledonia’s diluted earnings per share for 20X6 are closest to:

A) $0.17.

B) $0.15.

C) $0.13.

Young Distributors, Inc. issued convertible bonds two years ago, and those bonds are the only potentially dilutive security Young has issued. In 20X5, Young’s basic earnings per share (EPS) and diluted EPS were identical, but in 20X4 they were different. Which of the following factors is least likely to explain the difference between basic and diluted EPS? The:

A) bonds were redeemed by Young Distributors at the beginning of 20X5.

B) bonds were antidilutive in 20X5 but not in 20X4.

C) average market price of Young common stock increased in 20X5.

Nichols Company’s net income for 20X6 was $978,000 with 1,250,000 shares outstanding. The average share price in 20X6 was $8.50. Nichols issued 2,000 warrants to purchase 100 shares each for $10 per share in 20X5. Nichols Company’s diluted earnings per share (diluted EPS) for 20X6 is closest to:

A) $0.777.

B) $0.782.

C) $0.768.

Selected information from Indigo Corp.’s financial activities in the year 20X9 included the following:

• Net income is $5,600,000.
• The tax rate is 40%.
• 500,000 shares of common stock were outstanding on January 1.
• The average market price per share was $82 in 20X9.
• 6,000 5% coupon $1,000 par value convertible bonds, which are convertible at a ratio of 20 shares for each bond, were outstanding the entire year.
• 200,000 shares of common stock were issued on July 1.
• 100,000 shares of common stock were purchased by the company as treasury stock on October 1.

Indigo Corp.’s diluted earnings per share for 20X9 are closest to:

A) $8.32.

B) $9.74.

C) $8.49.

Selected information from Jupiter Corp.’s financial activities in the year 20X5 is as follows:

• Net income is $18,300,000.
• 115,000 shares of common stock were outstanding on January 1.
• The average market price per share was $150 in 20X5.
• 200 warrants, which each allow the holder to purchase 100 shares of common stock at an exercise price of $100 per common share, were outstanding the entire year.
• 60,000 shares of common stock were issued on April 1.
• 45,000 shares of common stock were purchased by the company as treasury stock on October 1.

Jupiter Corp.’s diluted earnings per share for 20X5 are closest to:

A) $123.02.

B) $113.28.

C) $117.75.

Rushford Corp.’s net income is $16,500,000 with 300,000 shares outstanding. The tax rate is 40%. The average share price for the year was $372. Rushford has 50,000, 9%, $1,000 par value convertible bonds outstanding. Each bond is convertible into two shares of common stock.

Rushford Corp.’s basic and diluted earnings per share (EPS) are closest to:

       Basic EPS    Diluted EPS

A) $65.63   $48.00

B) $55.00    $51.56

C) $55.00    $48.00

Zachary Company’s warrants issued in 2000 are Zachary’s only outstanding potentially dilutive security. In 2005, EPS and Dilutive EPS differed for the first time. A possible explanation for the change is the:

A) year-end market price of Zachary increased.

B) average market price of Zachary decreased.

C) average market price of Zachary increased.

A company has convertible preferred stock outstanding. In the computation of diluted earnings per share, common shares issued when convertible preferred stock is converted are added to the denominator of the basic EPS equation, and the numerator is:

A) not adjusted.

B) adjusted by adding back convertible preferred stock dividends.

C) adjusted by adding back non-convertible preferred stock dividends.

On December 31, 2004, JME Corporation had 350,000 shares of common stock outstanding. On September 1, 2005, an additional 150,000 shares of common stock were issued. In addition, JME had $10 million of 8% convertible bonds outstanding at December 31, 2004, which are convertible into 200,000 shares of common stock. Net income for 2005 was $3 million. Assuming an income tax rate of 40%, what amount should be reported as the diluted earnings per share for 2005?

A) $5.80.

B) $5.00.

C) $6.00.

An analyst has gathered the following information about Zany Corp.

• Net income of $200,000 for the year ended December 31, 2004.

• During 2004, 50,000 common shares were outstanding.

• Zany has 10,000 shares of 7%, $50 par convertible preferred stock outstanding, each convertible into two shares of common.

• 5,000 warrants are outstanding with an exercise price of $24. Each warrant is convertible into one common share.

• The average market price per common share during 2004 was $20.

Calculate Zany's basic and diluted earnings per share (EPS) for 2004.

Basic EPS

Diluted EPS

A) $3.30 $2.00

B) $3.30 $2.86

C) $4.00 $2.86

Assume that the exercise price of an option is $5, and the average market price of the stock is $8. Assuming 816 options are outstanding during the entire year, what is the number of shares to be added to the denominator of the diluted EPS?

A) 510.

B) 816.

C) 306.

The Widget Company had net income of $1 million for the period. There were 1 million shares of widget common stock outstanding for the entire period. If there are 100,000 options outstanding with an exercise price of $40, what is the diluted earnings per share for Widget common stock if the average price per share over the period was $50?

A) $1.00.

B) $0.99.

C) $0.98.

The Gaffe Company had net income of $1,500,000. Gaffe paid preferred dividends of $5 on each of the 100,000 preferred shares. Each preferred share is convertible into 20 common shares. There are 1 million Gaffe common shares outstanding. In addition to the common and preferred stock, Gaffe has $25 million of 4% bonds outstanding. If Gaffe's tax rate is 40%, what is its diluted earnings per share?

A) $0.50.

B) $1.00.

C) $0.33.

The Fischer Company had net income of $1,500,000. Fischer paid preferred dividends of $5 on each of the 100,000 preferred shares. There are 1 million Fischer common shares outstanding. In addition to the common and preferred stock, Fischer has $25 million of 4% bonds outstanding. The face value of each bond is $1,000. Each bond is convertible into 40 common shares. If Fischer's tax rate is 40%, determine its basic and diluted earnings per share (EPS)?

Basic EPS

Diluted EPS

A) $1.00 $1.25

B) $1.50 $1.25

C) $1.00 $0.80

Assume that the exercise price of an option is $9, and the average market price of the stock is $12. Assuming 992 options are outstanding during the entire year, what is the number of shares to be added to the denominator of the Diluted EPS?

A) 744.

B) 248.

C) 992.

Assume that the exercise price of an option is $6, and the average market price of the stock is $10. Assuming 802 options are outstanding during the entire year, what is the number of shares to be added to the denominator of the diluted earnings per share (EPS)?

A) 481.

B) 802.

C) 321.

Assume that the exercise price of an option is $10, and the average market price of the stock is $13. Assuming 999 options are outstanding during the entire year, what is the number of shares to be added to the denominator of the diluted earnings per share (EPS)?

A) 768.

B) 999.

C) 231.

Assume that the exercise price of an option is $11, and the average market price of the stock is $16. Assuming 1,039 options are outstanding during the entire year, what is the number of shares to be added to the denominator of the Diluted EPS?

A) 325.

B) 714.

C) 1,039.

When considering the impact of warrants on earnings per share, the method to calculate the number of shares added to the denominator is derived using which method?

A) Treasury Stock method.

B) Cost recovery method.

C) Weighted average method.

When considering convertible preferred stock which of the following components of the earnings per share (EPS) equation needs to be adjusted to calculate diluted earnings per share?

A) The numerator and denominator.

B) The numerator.

C) The denominator.

Stanley Corp. had 100,000 shares of common stock outstanding throughout 2004. It also had 20,000 stock options with an exercise price of $20 and another 20,000 options with an exercise price of $28. The average market price for the company's stock was $25 throughout the year. The stock closed at $30 on December 31, 2004. What are the number of shares used to calculate diluted earnings per share for the year?

A) 105,000.

B) 104,000.

C) 120,000.

BWT, Inc. shows the following data in its financial statements at the end of the year.

Assume all securites were outstanding at the beginning of the year:

• 6.125% convertible bonds, convertible into 33 shares of common stock. Issue price $1,000, 100 bonds outstanding.
• 6.25% convertible preferred stock, $100 par, 2,315 shares outstanding. Convertible into 3.3 shares of common stock, Issue price $100.
• 8% convertible preferred stock, $100 par, 2,572 shares outstanding. Convertible into 5 common shares, Issue price $80.
• 9,986 warrants are outstanding with an exercise price of $38. Each warrant is convertible into 1 share of common. Average market price of common is $52.00 per share.
• Common shares outstanding at the beginning of the year were 40,045.
• Net Income for the period was $200,000, while the tax rate was 40%.

What were the preferred dividends paid this whole year?

A) $35,045.

B) $14,469.

C) $20,576.

A) $6,215.

B) $2,450.

C) $3,675.

A) 2,689.

B) 13,665.

C) 9,986.

Basic EPS

Diluted EPS

A) $3.97 $3.06

B) $4.12 $2.95

C) $4.12 $3.06