Reading 32: Understanding the Income Statement - LOS i ～ Q

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Q55. The following data pertains to the Sapphire Company:

Net income equals $15,000.
5,000 shares of common stock issued on January 1^st.
10% stock dividend issued on June 1^st.
1,000 shares of common stock were repurchased on July 1^st.
1,000 shares of 10%, $100 par preferred stock each convertible into 8 shares of common were outstanding the whole year.

What is the company’s diluted earnings per share (EPS)?

A) $1.00.

B) $2.50.

C) $1.15.

Q56. 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) Cost recovery method.

B) Weighted average method.

C) Treasury Stock method.

Q57. 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.

B) The denominator.

C) The numerator and denominator.

Q58. 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.

Q59. 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) $14,469.

B) $20,576.

C) $35,045.