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 Topic: Question on Basic EPS, Becker Software ( Topic Closed)
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skyhawk
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Joined: 28 Feb 2009
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Posts: 22
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| Posted: 21 Nov 2009 at 14:08 | IP Logged
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During the current year, Comma Co. had outstanding:
25,000 shares of common stock, 8000 shares of $20 par,
10% cumulative preferred stock, and 3,000 bonds that are
$1,000 par and 9% convertible. The Bonds were originally
issued at par, and each bond was convertible into 30
shares of common stock. During the year, net income was
$200,00, no dividends were declared, and the tax rate was
30%. What amount was Comma's basic earnings per share for
the current year?
a. $3.38
b. $7.36
c. $7.55
d. $8.00
According to the Becker software, B is correct? why does
it take into account the dividend in determining Net
Income? Thanks guys.
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lovethepirk
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Joined: 10 Jul 2009
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Posts: 295
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| Posted: 21 Nov 2009 at 15:01 | IP Logged
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Just something you will have to remember :)
On Basic EPS you must remove from NI the:
---Declared dividends on non-cumulative prefered stock(whether paid or not)
---Accumulated dividends on cumulative prefered stock(whether declared or not)
Insert that into memory :)
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skyhawk
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| Posted: 21 Nov 2009 at 15:19 | IP Logged
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Ah thanks!
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Norman Parker
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Joined: 02 Apr 2016
Location: United States
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| Posted: 29 May 2016 at 22:10 | IP Logged
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Why don't we convert the 3000 bonds? I show income
would decrease to $3.24 a share. Add back 270,000 of
interest expense less $81,000 of tax.
Numerator 200,000-16,000+270,000-81,000 = $373,000
Denominator 25,000 + 90,000 = 115,000
=3.24 / share that's dilutive right?
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Carpe diem - Sieze the day!
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nambivar
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Joined: 14 Nov 2010
Location: United States
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| Posted: 09 Jun 2016 at 22:22 | IP Logged
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Norman Park: As a CPA candidate, my focus has to be to understand the question, work out the solution and choose the correct answer within the time limit for the exam. Here, this question specifically asks for Basic EPS. This is calculated by determining the income available to the common share holders. It means, I deduct the amount of dividends declared and the accumulated dividends on preferred stock; reason for deducting these is obvious: when once declared, that much amount is not available to the common shareholders as the dividends ought to be paid; and, when there is net income, [the accumulated] dividend on preferred stocks also are to be paid. As can be expected, irrelevant information would also be included in some of the problems to distract us and we need to sift out such info. [in this problem the convertible bonds info is the distractor]. That is why we calculate the basic EPS here by deducting the accumulated but not declared preferred dividend amount [8000 shares $20 par, 10% cumulative= $16000] from the net income of $ 200000 and dividing the resultant (200000-16000)/ 25000 to arrive at 7.36 Hope this helps.
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Passed all papers in 2011
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BTW it is Seize [not sieze]
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