Q17. 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:

          Basic EPS           Diluted EPS

A) $5.45                                          $5.19

B) $6.00                                          $5.45

C) $6.00                                          $4.92

Q18. 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.

Q19. Which of the following statements regarding basic and diluted EPS is least accurate?

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

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

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

Q20. 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.

答案和详解如下：

Q17. 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:

          Basic EPS           Diluted EPS

A) $5.45                                          $5.19

B) $6.00                                          $5.45

C) $6.00                                          $4.92

Correct answer is B)

Protocol’s basic EPS (net income / weighted average common shares outstanding) was ($4,800,000 / 800,000 =) $6.00. Diluted EPS is calculated under the assumption that the convertible bonds were converted into common stock as of January 1, 2005, and the bond interest net of tax was restored to net income. The common shares from the conversion of the bonds are added to the denominator of the equation. Protocol’s Diluted EPS was ($4,800,000 + ((5,000 × $1,000 × 0.08)(1 − 0.40)) / (800,000 + (5000 × 25)) =) $5.45.

Q18. 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.

Correct answer is A)

To calculate diluted EPS, dividends on convertible preferred stock and the after tax interest on convertible debt need to be added to net income in the numerator. If diluted EPS are more than basic EPS, the convertible securities are antidilutive and should NOT be used in computing diluted EPS.

Q19. Which of the following statements regarding basic and diluted EPS is least accurate?

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

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

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

Correct answer is B)         

Antidilutive securities increase EPS if exercised or converted to common stock.

Q20. 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.

Correct answer is C)

Orange’s basic EPS ((net income – preferred dividends) / weighted average common shares outstanding) is ((($7,600,000 − (10,000 × $1,000 *times; 0.08)) / 2,000,000 =) $3.40. To check for dilution, EPS is calculated under the assumption that the convertible preferred shares are converted into common shares at the beginning of the year. The preferred dividends paid are added back to the numerator of the Diluted EPS equation, and the additional common shares are added to the denominator of the equation. Orange’s if-converted EPS is ($7,600,000 / (2,000,000 + 200,000) =) $3.45. Because if-converted EPS is higher than basic EPS, the preferred stock is antidilutive and no adjustment is made to basic EPS.

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