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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Earnings per share (EPS) is the most featured single financial statistic about modern corporations. Daily published quotations of stock prices also include a “times earnings” figure for many securities that is based on EPS. Often, the focus of analysts’ discussions will be on the EPS of the corporations receiving their attention.

Required:

  1. 1. Explain how dividends or dividend requirements on any class of preferred stock that may be outstanding affect the computation of basic EPS.
  2. 2. One of the technical procedures applicable in diluted EPS computations is the “treasury stock method.” Briefly describe the circumstances under which it might be appropriate to apply the treasury stock method.
  3. 3. In the case of convertible bonds that are assumed to be converted and are dilutive, explain how they are handled for purposes of diluted EPS computations.

1.

To determine

State the manner by which dividends or dividends requirements on any class of preferred stock that is outstanding affects the computation basic EPS.

Explanation

Earnings per share (EPS):

The amount of net income available to each shareholder per common share outstanding is referred to as earnings per share (EPS).

Before computing the earnings per share the dividend on preferred stock must be deducted from the net income or added to the net loss. This generality can be modified with various features and requirements preferred dividend might have in respect to the preferred dividends...

2.

To determine

Explain the circumstances under which it is appropriate to apply the treasury stock method for the given situation.

3.

To determine

State the manner by which the convertible bonds that are assumed to be converted and are dilutive will be handled for the purpose of computation of diluted EPS.

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