Reading 32: Understanding the Income Statement-LOS g 习题精选 structure, 2011, complex, capital, company

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Session 8: Financial Reporting and Analysis: The Income Statement, Balance Sheet, and Cash Flow Statement
Reading 32: Understanding the Income Statement

LOS g: Describe the components of earnings per share and calculate a company's earnings per share (both basic and diluted earnings per share) for both a simple and complex capital structure.

 

 

For an organization with a simple capital structure, the computation of earnings per share is least likely to consider:

A) net income.

B) the weighted average number of preferred shares outstanding.

C) the weighted average number of common shares outstanding.

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The equation for Basic EPS (net income – preferred dividends / weighted average number of common shares outstanding) does not include the number of preferred shares outstanding, because the objective is to determine the earnings available to the common shareholder.

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Bluff, Inc.’s stock transactions during the year were as follows:
January 1                      90,000 common shares outstanding.
April 1                           20% stock dividend is declared and issued.
October 1                     10,000 shares are reacquired as treasury stock.
What is Bluff’s weighted average number of shares outstanding during the year?
A)
98,000.
B)
101,000.
C)
105,500.

正确答案应该是：B
1 January         shares outstanding     90,000
1 April               20%stock issued        18,000
1 October         shares repurchased  (10,000)
shares outstanding 31 December      98000
90,000 x 3/12=22500
(90,000+18,000) x 6/12=54000
98,000 x 3/12=24500
Weighted average number of shares ourstanding= 22500+54000+24500=101,000

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For a firm with a simple capital structure, all of the following are necessary to measure basic earnings per share (EPS) EXCEPT:

A) the timing and number of shares issued or repurchased during the year.

B) dividends paid to preferred shareholders.

C) dividends paid to common shareholders.

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Basic EPS = earnings available to common shareholders divided by the weighted average number of common shares outstanding. Earnings available to common shareholders equals net income minus preferred dividends.

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An analyst has gathered the following information about a company:

• 110,000 shares of common outstanding at the beginning of the year.
• The company repurchases 20,000 of its own common shares on July 1.
• Net income is $300,000 for the year.
• 10,000 shares of existing 10 percent cumulative $100 par preferred outstanding that is not in arrears at the beginning or ending of the year.
• The company also has $1 million in 10 percent callable bonds outstanding.
• The company has declared a $0.50 dividend on the common.

What is the company's basic Earnings Per Share?

A) $3.00.

B) $2.00.

C) $1.00.

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Interest is already deducted from earnings.

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The standard equation for computing basic earnings per share (EPS) is:

A) [Net Income – Preferred Dividends] / Weighted Average Number of Common Shares Outstanding.

B) [Net Income ? Common Dividends] / Weighted Average Number of Common Shares Outstanding.

C) [Sales ? Cost of Goods Sold] / Number of Preferred Shares Outstanding.

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The basic EPS calculation does not consider the effects of any dilutive securities in the computation.

Basic EPS = [Net Income – Preferred Dividends]/Weighted Average Number of Common Shares Outstanding.

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Connecticut, Inc.’s stock transactions during the year 20X5 were as follows:

• January 1: 360,000 common shares outstanding.
• April 1: 1 for 3 reverse stock split.
• July 1: 60,000 common shares issued.

When computing for earnings per share (EPS) computation purposes, what is Connecticut’s weighted average number of shares outstanding during 20X5?

A) 150,000.

B) 210,000.

C) 270,000.

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Connecticut’s January 1 balance of common shares outstanding is adjusted retroactively for the 1 for 3 reverse stock split, meaning there are (360,000 / 3) = 120,000 “new” shares treated as if they had been outstanding since January 1. The weighted average of the shares issued in July, (60,000 × 6 / 12) = 30,000 is added to that figure, for a total of 150,000.

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The ZZT Company went public on June 1, 2004, by issuing 25 million shares of common stock. In 2005, the firm raised additional capital by issuing 2 million shares of preferred stock. What is the weighted average number of common shares outstanding for the year ending December 31, 2005?

A) 25,000,000.

B) 14,583,333.

C) 10,416,667.

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The weighted average number of common shares outstanding is the number of shares outstanding during the year weighted by the portion of the year they were outstanding. Since no new common shares were issued in 2005, and there were 25 million shares at the end of 2004, there are 25 million shares at the end of 2005. Note that the preferred stock shares do not affect the common shares outstanding.

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A simple capital structure is least likely to include:

A) convertible bonds.

B) treasury stock.

C) callable preferred stock.

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Simple capital structures do not include any potentially dilutive securities (a security that could decrease earnings per share if exercised). Convertible bonds are potentially dilutive.

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Ajax Company has a simple capital structure. Which of the following will NOT be found on its balance sheet?

A) 6%, $50 par value callable bond.

B) 10%, secured mortgage bond denominated in Swiss francs.

C) 3%, $100 par value convertible bond.

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If convertible bonds exist, the firm has a complex capital structure.