Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 20, Problem 20.6Q
Diluted EPS, Convertible Debt, and Preferred Stock. Does a company with dilutive convertible debt and dilutive convertible
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Students have asked these similar questions
When the selling price of treasury shares is greater than its cost, the company credits the difference to
a.Gain on Sale of Treasury Shares.
b.Share Premium–Treasury.
c.Treasury Shares.
d.Share Premium–Ordinary.
In computing diluted EPS, dividends on convertible cumulative preferred stock should be
a. ignored
b. deducted from net income, only when declared
c. added to net income next of tax
calculate the:
-after-tax cost of debt
-the cost of preferred stock
-the cost of equity from retained earnings using the DCF method
-the cost of newly issued common stock using the DCF method
Chapter 20 Solutions
Intermediate Accounting (2nd Edition)
Ch. 20 - Prob. 20.1QCh. 20 - Prob. 20.2QCh. 20 - If-Converted Method. Does the if-converted...Ch. 20 - Diluted EPS. If all potentially dilutive...Ch. 20 - Diluted EPS. Can diluted earnings per share on...Ch. 20 - Diluted EPS, Convertible Debt, and Preferred...Ch. 20 - Prob. 20.7QCh. 20 - Prob. 20.8QCh. 20 - Prob. 20.9QCh. 20 - EPS Disclosures. is an entity required to present...
Ch. 20 - Prob. 20.11QCh. 20 - Hutchins Company had 200,000 shares of common...Ch. 20 - Prob. 20.2MCCh. 20 - Prob. 20.3MCCh. 20 - Prob. 20.4MCCh. 20 - Refer to the information about Hutchins Company in...Ch. 20 - Prob. 20.6MCCh. 20 - Prob. 20.1BECh. 20 - Prob. 20.2BECh. 20 - Computing Income for Basic EPS. Russo Watches, Ltd...Ch. 20 - Prob. 20.4BECh. 20 - Compute Weighted-Average Number of Shares...Ch. 20 - Compute Weighted-Average Number of Shares...Ch. 20 - Prob. 20.7BECh. 20 - Prob. 20.8BECh. 20 - Prob. 20.9BECh. 20 - Prob. 20.10BECh. 20 - Prob. 20.11BECh. 20 - Computing Basic and Diluted EPS, Options. Nicks...Ch. 20 - Computing Diluted EPS, Convertible Debt. Axelon...Ch. 20 - Computing Basic and Diluted EPS, Preferred Stock....Ch. 20 - Computing Weighted-Average Number of Common Shares...Ch. 20 - Prob. 20.3ECh. 20 - Computing Basic and Diluted EPS, Convertible...Ch. 20 - Prob. 20.5ECh. 20 - Computing Basic and Diluted EPS, Convertible Bonds...Ch. 20 - Computing Basic and Diluted EPS, Convertible Bonds...Ch. 20 - Computing Basic and Diluted EPS, Convertible...Ch. 20 - Computing Basic and Diluted EPS, Options,...Ch. 20 - Computing Basic and Diluted EPS, Convertible...Ch. 20 - Computing Basic and Diluted EPS, Convertible...Ch. 20 - Prob. 20.12ECh. 20 - Prob. 20.1PCh. 20 - Prob. 20.2PCh. 20 - Computing Basic and Diluted EPS. Convertible...Ch. 20 - Prob. 20.4PCh. 20 - Computing Basic and Diluted EPS, Convertible...Ch. 20 - Computing Basic and Diluted EPS, Convertible...Ch. 20 - Prob. 20.7PCh. 20 - Prob. 20.8PCh. 20 - Computing Basic and Diluted EPS, Convertible...Ch. 20 - Prob. 1JCCh. 20 - Financial Statement Analysis Case 1: EPS Analysis...Ch. 20 - Prob. 1SSCCh. 20 - Basis for Conclusions Case 1: Antidilutive...Ch. 20 - Basis for Conclusions Case 2: Treasury Stock...
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- To calculate diluted EPS, the accountant does all of the following except:adds back to net income any compensation expense recognized on the employee stockoptionsadds back any interest expense (net of taxes) on convertible bondsadds back any dividends on convertible preferred stock the firm subtracted in computingnet income to common shareholders.enters only the net incremental shares issued (shares issued under options minus assumedshares repurchased) in the computation of diluted EPS.arrow_forwardWhich of the following affects the total Shareholders’ Equity? a. Declaration of a scrip dividend b. Declaration of share split c. Appropriation of retained earnings d. Retirement of treasury sharesarrow_forwardWhich of the following statements is CORRECT? Group of answer choices The component cost of preferred stock is expressed as rp(1 - T). This follows because preferred stock dividends are treated as fixed charges, and as such they can be deducted by the issuer for tax purposes. A cost should be assigned to retained earnings due to the opportunity cost principle, which refers to the fact that the firm’s stockholders would themselves expect to earn a return on earnings that were paid out rather than retained and reinvested. No cost should be assigned to retained earnings because the firm does not have to pay anything to raise them. They are generated as cash flows by operating assets that were raised in the past, hence they are “free.” Suppose a firm has been losing money and thus is not paying taxes, and this situation is expected to persist into the foreseeable future. In this case, the firm’s before-tax and after-tax costs of debt for purposes of calculating the WACC will both be…arrow_forward
- Mandatorily redeemable preferred stock (preference shares) is reported among liabilities and their dividends are reported in the income statement as interest expense using a. U.S. GAAP. b. IFRS. c. Both U.S. GAAP and IFRS. d. Neither U.S. GAAP nor IFRS.arrow_forwardExplain how convertible securities are determined to bepotentially dilutive common shares and how thoseconvertible securities that are not considered to be potentiallydilutive common shares enter into the determinationof earnings per share data.arrow_forwardProvide differences of Treasury Share with Ordinary Share or Preference Share. Give the accounting treatment for the following cases: Treasury Shares are sold below its cost Treasury Shares are sold above its cost Treasury Share retires (Cost < Par Value ) Treasury Shares retires (Cost > Par Value)arrow_forward
- A firm’s preferred stock often sells at yields below its bonds because:a. Preferred stock generally carries a higher agency rating.b. Owners of preferred stock have a prior claim on the firm’s earnings.c. Owners of preferred stock have a prior claim on a firm’s assets in the event of liquidation.d. Corporations owning stock may exclude from income taxes most of the dividend income they receive.arrow_forwardTransactions wherein tax-exempt funds compete to purchase shares of stock just prior to their ex-dividend dates, thereby driving up the share prices, are referred to as Group of answer choices dividend laundering wash sales bed-and-breakfast deals tax swapsarrow_forwardWhich of the following statements is CORRECT? Group of answer choices When calculating the cost of preferred stock, companies must adjust for taxes, because dividends paid on preferred stock are deductible by the paying corporation. Because of tax effects, an increase in the risk-free rate will have a greater effect on the after-tax cost of debt than on the cost of common stock as measured by the CAPM. If a company's beta increases, this will increase the cost of equity used to calculate the WACC, but only if the company does not have enough reinvested earnings to take care of its equity financing and hence must issue new stock. Higher flotation costs reduce investors' expected returns, and that leads to a reduction in a company's WACC. When calculating the cost of debt, a company needs to adjust for taxes, because interest payments are deductible by the paying corporation.arrow_forward
- The cost of dividend payable on redeemable preference shares should be included in______. Select one: a. in the statement of income after identifying profit after tax b. in the statement of income before identifying the profit before tax c. as a deduction in the statement of changes in equity d. in the statement of income as a deduction prior to identifying profit from operationsarrow_forwardWhich of the following decreases total equity? A. A stock split B. Recording Revenue C. The purchase of Treasury Stock D. Issuance of Convertible preferred stockarrow_forwardWhich of the following is not a method that may be used to account for treasury shares?a. Cost methodb. Par value methodc. Retained earnings methodd. Constructive retirement methodCarrow_forward
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Earnings per share (EPS), basic and diluted; Author: Bionic Turtle;https://www.youtube.com/watch?v=i2IJTpvZmH4;License: Standard Youtube License