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Intermediate Accounting: Reporting...

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

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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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The earnings per share data required of a company depend on the nature of its capital structure. A corporation may have a simple capital structure and compute only “basic earnings per share” or it may have a complex capital structure and have to compute basic earnings per share and “diluted earnings per share.”

Required:

Define the term complex capital structure and discuss the disclosures (both financial and explanatory) necessary for earnings per share when a corporation has a complex capital structure.

To determine

Describe the term complex capital structure and also explain the manner by which the disclosures are necessary for earnings per share when a corporation has complex capital structure.

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).

Complex capital structure:

A capital structure is sad to be complex when the both the common stock outstanding and the securities are easily convertible into common equity are potentially dilutive. Some of the examples of the complex capital structure are stock options, convertible debt, or convertible preferred shares.

A corporation with a complex capital structure is required to report both the basic and diluted earnings per share amounts on the face of its income statement. The complex capital structure includes the presentation of both diluted earnings per share and  basic earnings per share  were the basic earnings per share is based on the weighted average outstanding common shares that are divided into net earnings...

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