Chapter 19, Problem 19.9BYP

(1)

Earnings per share (EPS): The amount of earnings made available to each common share is referred to as earnings per share. Dilutive securities like convertible bonds, convertible preferred stock, and stock options, reduce the EPS by increasing the common shares.

Use the following formula to determine EPS:

$\begin{array}{c}\begin{array}{l}\text{Earnings }\\ \text{per share}\end{array}\}\text{ = }\frac{\text{Earnings available to common shareholders}}{\text{Weighted average number of common shares outstanding}}\\ \text{= }\frac{\text{Net income –Preferred dividends}}{\text{Weighted average number of common shares outstanding}}\end{array}$

To determine

To explain: The meaning of EPS, in comparison to the cash dividends being understood as EPS

(2)

To determine

To explain: The effect of stock-split on EPS

(3)

To determine

To explain: Whether the shares repurchased would be accounted for while computing EPS