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Intermediate Accounting: Reporting...
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Intermediate Accounting: Reporting...
In determining basic earnings per share, dividends on nonconvertible cumulative preferred stock should be:
- a. deducted from net income only if declared
- b. deducted from net income whether declared or not
- c. added back to net income whether declared or not
- d. disregarded
Identify the manner by which nonconvertible cumulative preferred stock is used for ascertaining basic earnings per share.
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).
Justification for the incorrect answer:
Option a:
Corporation having an outstanding noncumulative preferred stock should deduct the dividends only when they are declared during the year for the current period form the net income. Hence, option a is an incorrect answer.
Option c:
Corporation having an outstanding cumulative preferred stock should deduct the dividends, which are declared or not declared during the year for the current period. Hence, option c is an incorrect answer.
Option d:
Dividends on nonconvertible cumulative preferred stock should be regarded while computing the basic earnings per share...
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