标题: Reading 32: Understanding the Income Statement LOS G习题精选 [打印本页]
作者: honeycfa 时间: 2010-4-17 21:08 标题: [2010]Session 8-Reading 32: Understanding the Income Statement LOS G习题精选
LOS g, (Part 1): Describe the components of earnings per share.
For an organization with a simple capital structure, the computation of earnings per share is least likely to consider:
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B) |
the weighted average number of preferred shares outstanding. | |
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C) |
the weighted average number of common shares outstanding. | |
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.
作者: honeycfa 时间: 2010-4-17 21:09
Savannah Corp.’s financial accounts for the year ended December 31 included the following information:
- Net Income: $122,000
- Preferred Stock Dividends Paid: $35,000
- Common Stock Dividends Paid: $42,000
- Common Shares outstanding at January 1: 50,000
- 10% preferred $100 par value shares outstanding at January 1: 3,500
No stock transactions occurred during the year and all preferred stock dividends were paid. Basic earnings per share for Savannah are closest to:
Savannah Corp.’s basic EPS ((net income – preferred dividends) / weighted average number of common shares outstanding) was (($122,000 ? $35,000) / $50,000 =) $1.74.
作者: honeycfa 时间: 2010-4-17 21:09
Sampson Corp. had 500,000 shares of common stock outstanding at the beginning of the year. The average market price was $20.
- On April 1, Sampson issued 100,000 shares of $1000 par value 10 percent preferred stock.
- On July 1, Sampson issued 200,000 warrants to purchase 10 shares of common stock each at $22 per share.
- On October 1, Sampson repurchased 60,000 of common stock as treasury stock for $15 per share.
The weighted average common shares outstanding Sampson should use to compute basic earnings per share (EPS) was:
Only the October 1 transaction affects the weighted average common shares outstanding because the April 1 transaction would not affect the number of shares outstanding and the July 1 transaction involves warrants which would not be included in the basic EPS calculation. The computation for basic EPS is [(500,000 × 12) ? (60,000 × 3)] / 12 = 485,000.
作者: honeycfa 时间: 2010-4-17 21:10
Which of the following securities would least likely be found in a simple capital structure?
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A) |
6%, $5000 par value putable bond. | |
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B) |
7%, $100 par value non convertible preferred. | |
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C) |
3%, $100 par value convertible preferred. | |
A simple capital structure contains no potentially dilutive securities such as stock options, warrants, or convertible preferred stock.
作者: honeycfa 时间: 2010-4-17 21:10
A complex capital structure, for purposes of determining disclosure of diluted Earnings Per Share, is distinguished from a simple capital structure by the:
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A) |
company having issued warrants, convertible securities, or options. | |
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B) |
company's use of debt to finance its operations. | |
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C) |
company having preferred stock outstanding. | |
A complex structure contains potentially dilutive securities such as options warrants or convertible securities. Where as simple capital structures contain no potentially dilutive securities and contains only common stock and non-convertible securities.
作者: honeycfa 时间: 2010-4-17 21:10
Jersey, Inc.’s financial information included the following for its year ended December 31:
- 160,000 shares of common stock were outstanding for the entire year.
- 18,000 shares of 10%, $100 par value cumulative preferred stock were outstanding for the entire year.
- Common stock dividends paid during the current year were $240,000.
- All preferred stock dividends were paid for the current year.
- Net income was $720,000.
Basic earnings per share for Jersey, Inc. for the year ended December 31 are closest to:
Jersey, Inc.’s basic EPS = (net income – preferred dividends) / (weighted average number of common shares outstanding) was ($720,000 - $180,000)/160,000 = $3.38.
作者: honeycfa 时间: 2010-4-17 21:11
Which type of a capital structure contains no dilutive securities?
A complex capital structure contains potentially dilutive securities such as options, warrants, or convertible securities. There is no basic capital structure but there are basic earnings per share which does NOT consider the effects of any dilutive securities in the computation of EPS.
作者: honeycfa 时间: 2010-4-17 21:11
A firm with a capital structure consisting of only common stock and non-convertible bonds is said to have a:
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A) |
non-diluted capital structure. | |
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B) |
straight capital structure. | |
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C) |
simple capital structure. | |
A simple capital structure is one that contains no securities that have the potential to dilute a firm’s earnings per share. For example, convertible bonds, convertible preferred stock, options, and warrants have the potential to dilute earnings per share upon conversion or exercise.
作者: honeycfa 时间: 2010-4-17 21:12
A complex capital structure would typically contain:
A complex capital structure is one that contains securities that have the potential to dilute a firm’s earnings per share. For example, convertible bonds, convertible preferred stock, options, and warrants have the potential to dilute earnings per share upon conversion or exercise.
作者: honeycfa 时间: 2010-4-17 21:12
The SSP Company had 5 million shares outstanding on January 1. On February 15 the board of directors approved a 3:2 stock split, effective April 1. What is the weighted average number of shares outstanding for the SSP Company for year-end?
Stock splits and stock dividends are applied to all shares that existed at the beginning of the period and shares that were issued or repurchased during the period, but prior to the split or dividend. For SSP, the 5 million beginning-of-year shares outstanding are adjusted to 7.5 million shares (5.0 × 3/2) as a result of the 3:2 split.
作者: honeycfa 时间: 2010-4-17 21:13
Zimmer Co. had the following common shares outstanding:
- January 1, 2003: 50,000
- October 1, 2003: Issued 20,000 shares
- March 1, 2004: Issued a 10% stock dividend
- July 1, 2004: Declared a 2 for 1 stock split
- October 1, 2004: Repurchased 30,000 shares
Calculate the weighted average number of common shares outstanding for 2003 and 2004.
For year 2003:
50,000 × 12 = 600,000
20,000 × 3 = 60,000
660,000/12 = 55,000
For year 2004:
70,000 × 1.1 × 2 = 154,000 × 12 = 1,848,000
(30,000) × 3 = (90,000)
1,758,000 / 12 = 146,500
作者: honeycfa 时间: 2010-4-17 21:13
Robinson Company had 1 million shares outstanding at the beginning of the year. On April 1, Robinson issued an additional 300,000 shares. On July 1, Robinson issued 200,000 more shares. What is Robinson's weighted average number of shares outstanding for the calculation of earnings per share?
Weighted average shares = 1,000,000 + (0.75) 300,000 + (0.5) 200,000 = 1,325,000 shares
作者: honeycfa 时间: 2010-4-17 21:14
The following information pertains the QRK Company:
- One million shares of common stock outstanding at the beginning of 2005.
- 200,000 shares issued on the last day of March.
- 500,000 shares issued on the last day of June.
- 800,000 shares issued on the last day of September.
What is the number of shares that should be used to compute 2005 earnings per share for the QRK Company?
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. For the QRK Company, the weighted number of shares outstanding is the original one million shares plus 150,000 shares for the end-of-March issue (= 200,000 × 9/12), plus 250,000 shares for the end-of-June issue (= 500,000 × 6/12), plus 200,000 shares for the end-of-September issue (= 800,000 × 3/12), or 1.6 million shares.
作者: honeycfa 时间: 2010-4-17 21:15
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?
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.
作者: honeycfa 时间: 2010-4-17 21:15
A simple capital structure is least likely to include:
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C) |
callable preferred stock. | |
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.
作者: honeycfa 时间: 2010-4-17 21:15
Ajax Company has a simple capital structure. Which of the following will NOT be found on its balance sheet?
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A) |
6%, $50 par value callable bond. | |
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10%, secured mortgage bond denominated in Swiss francs. | |
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3%, $100 par value convertible bond. | |
If convertible bonds exist, the firm has a complex capital structure.
作者: honeycfa 时间: 2010-4-17 21:16
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?
Interest is already deducted from earnings.
作者: honeycfa 时间: 2010-4-17 21:16
The standard equation for computing basic earnings per share (EPS) is:
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[Net Income ? Common Dividends] / Weighted Average Number of Common Shares Outstanding. | |
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[Sales ? Cost of Goods Sold] / Number of Preferred Shares Outstanding. | |
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C) |
[Net Income – Preferred Dividends] / Weighted Average Number of Common Shares Outstanding. | |
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.
作者: honeycfa 时间: 2010-4-17 21:17
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?
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.
作者: honeycfa 时间: 2010-4-17 21:17
For a firm with a simple capital structure, all of the following are necessary to measure basic earnings per share (EPS) EXCEPT:
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A) |
dividends paid to common shareholders. | |
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B) |
the timing and number of shares issued or repurchased during the year. | |
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C) |
dividends paid to preferred shareholders. | |
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.
作者: honeycfa 时间: 2010-4-17 21:18
Washington, Inc.’s stock transactions during the year 20X4 were as follows:
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January 1 |
720,000 shares issued and outstanding |
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May 1 |
2 for 1 stock split occurred |
What was Washington’s weighted average number of shares outstanding during 20X4, for earnings per share (EPS) computation purposes?
The January 1 balance is adjusted retroactively for the stock split and (720,000 × 2 =) 1,440,000 shares are treated as outstanding from January.
作者: honeycfa 时间: 2010-4-17 21:18
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%, $100 par value preferred shares. If the firm earns $210,000 after taxes, what is its Basic EPS?
(210,000 ? 110,000) / 20,000 = $5 share
作者: honeycfa 时间: 2010-4-17 21:19
Zichron, Inc., had the following equity accounts on December 31:
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Common stock: 20,000 shares.
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Preferred stock A: 10,000 shares convertible into common on a 2 for 1 basis, dividend of $40,000 was declared during the year.
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Preferred stock B: 10,000 shares, convertible to common on a 4 for 1 basis, dividend of $5,000 was declared during the year.
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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?
($120,000 ? 40,000 ? 5,000) / 20,000 shares = $3.75.
What are the diluted earnings per share reported for the year?
($120,000) / (20,000 + 20,000 + 40,000) = $1.50.
作者: honeycfa 时间: 2010-4-17 21:19
An analyst gathered the following information about a company:
- 01/01/04 - 50,000 shares issued and outstanding at the beginning of the year
- 04/01/04 - 5% stock dividend
- 10/01/04 - 10% stock dividend
What is the company’s weighted average number of shares outstanding at the end of 2004?
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. Dividends and splits are applied to all shares issued or repurchased and all original or adjusted shares outstanding prior to the split or dividend.
Step 1) Apply the 04/01/04 dividend to the beginning-of-year shares: Adjusted shares = 1.05 × 50,000 = 52,500
Step 2) Apply the 10/01/04 dividend the adjusted beginning-of-year shares. Adjusted beginning of year shares = 57,750 (= 1.1 × 52,500).
Step 3) Compute the weighted average number of shares. 57,750 × (12/12) = 57,750 shares.
作者: honeycfa 时间: 2010-4-17 21:20
Last year, the AKB Company had net income equal to $5 million. Combined state and local taxes were 45%. The firm paid $1 million to holders of its 1 million common shares and $250,000 to 100,000 preferred shareholders. What was AKB's earnings per share (EPS) last year?
EPS = earnings available to common shareholders divided by the weighted average number of common shares outstanding. Earnings available to common shareholders is net income minus preferred dividends, or $4,750,000 (= $5 million – 250,000) for AKB.
作者: honeycfa 时间: 2010-4-17 21:20
An analyst gathered the following information about a company:
- 01/01/06 - 20,000 shares issued and outstanding
- 04/01/06 - 5.0% stock dividend
- 07/01/06 - 5,000 shares repurchased
- 10/01/06 - 2:1 stock split
What is the company’s weighted average number of shares outstanding at the end of 2006?
The end-of-period 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. Dividends and splits are applied to all shares issued or repurchased and all original or adjusted shares outstanding prior to the split or dividend.
Step 1) Apply the 04/01/06 dividend to the beginning of year shares:
Adjusted shares = 1.05 × 20,000 = 21,000
Step 2) Apply the 10/01/06 split to the adjusted beginning-of-year shares and the repurchase.
Adjusted beginning-of-year shares = 42,000 (= 2 × 21,000)
Adjusted repurchase = 10,000 (= 2 × 5,000)
Step 3) Compute the weighted average number of shares.
42,000(12/12) - 10,000(6/12) = 37,000 shares
作者: honeycfa 时间: 2010-4-17 21:22
A company has the following sequence of events regarding their stock:
- One million shares outstanding at the beginning of the year.
- On June 30th, they declared and issued a 10% stock dividend.
- On September 30th, they sold 400,000 shares of common stock at par.
Basic earnings per share at year-end will be computed on how many shares?
作者: honeycfa 时间: 2010-4-17 21:23
LOS g, (Part 2): Calculate a company's earnings per share (both basic and diluted earnings per share) for both a simple and complex capital structure.
Lawson, Inc.’s net income for the year was $1,060,000 with 420,000 shares outstanding. Lawson has 2,000 shares of 8%, $1,000 par value convertible preferred stock that were outstanding the entire year. Each share of preferred is convertible into 50 shares of common stock. Lawson's diluted earnings per share are closest to:
Lawson’s basic EPS ((net income – preferred dividends) / weighted average common shares outstanding) is ($1,060,000 – (2,000 × $1,000 × 0.08)) / 420,000 = $2.14. To calculate diluted EPS the convertible preferred shares are presumed to have been converted, the preferred dividends paid are added back to the numerator of the EPS equation, and the additional common shares are added to the denominator of the equation. Lawson’s diluted EPS is $1,060,000 / (420,000 + 100,000) = $2.04.
作者: honeycfa 时间: 2010-4-17 21:23
Selected information from Able Company’s financial activities is as follows:
- Net Income was $720,000.
- 1,000,000 shares of common stock were outstanding on January 1.
- 1,000 shares of 8%, $1,000 par value preferred shares were outstanding on January 1.
- The tax rate was 40%.
- The average market price per share for the year was $20.
- 6,000 shares of 3%, $500 par value preferred shares, convertible into common shares at a rate of 40 common shares for each preferred share, were outstanding for the entire year.
Able’s basic and diluted earnings per share (EPS) are closest to:
Able’s basic earnings per share (EPS) ((Net Income ? Preferred Stock Dividends) / weighted average shares outstanding) for 2004 was (($720,000 ? ($500 × 6,000 × 0.03) ? ($1,000 × 1,000 × 0.08)) / 1,000,000 =) $0.55. If the convertible preferred were converted to common stock on January 1, (6,000 × 40 =) 240,000 additional shares would have been issued. Also, dividends on the convertible preferred would not have been paid.
So we have diluted EPS was ($720,000 ? 80,000) / (1,000,000 + 240,000) = $0.52.
作者: honeycfa 时间: 2010-4-17 21:23
During 2004, Covax Corp. reported net income of $2.4 million and 2 million shares of common stock. Covax paid cash dividends of $14,000 to its preferred shareholders and $30,000 to its common shareholders. In 2004, Covax issued 900, $1,000 par, 5.5 percent bonds for $900,000. Each bond is convertible to 50 shares of common stock. Assume the tax rate is 40%. Compute Covax’s basic and diluted EPS.
2004 Basic EPS:
2004 Diluted EPS:
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