D249 Basic and
Diluted EPS questions
and answers
What is a simple capital structure?
A simple capital structure is when a company has only common
stock outstanding, or includes no potential common stock that upon
conversion or exercise could dilute earnings per common share.
What is earnings per share?
Earnings per share is the income common stockholders earned for
each share of common stock outstanding for a reporting period.
Earnings per share is often abbreviated EPS.
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What is the formula for basic earnings per share?
, The formula for basic earnings per share is (net income minus
preferred dividends (if any)) divided by weighted average common
stock outstanding.
What is net income, as it relates to EPS?
Net income is the income available to common stockholders at the
end of a reporting period.
How are preferred dividends treated?
Preferred dividends can be cumulative or noncumulative. If the
preferred stock is cumulative, preferred dividends for the current
reporting period are subtracted from net income whether declared
or not. On the other hand, if the preferred stock is noncumulative,
preferred dividends are subtracted from net income only if declared.
What is meant by weighted-average common stock?
Can you provide an example on how to calculate weighted-average
common stock outstanding?
A company had 8,000 shares of common stock outstanding for the
calendar year. The following equity transactions occurred during the
year:
On 4/1, 1,000 new shares were issued.
On 8/1, 3,000 shares were reacquired.
The weighted-common stock outstanding for the calendar year is
7,500 calculated as follows:
1/1 – 12/31 8,000 x (12/12) = 8,000
4/1 – 12/31 1,000 x (9/12) = 750
8/1 – 12/31 (3,000) x (5/12) = (1,250)
7,500
Can you provide an example on how to calculate weighted-average
common stock outstanding with either a stock split or stock
dividend?
Diluted EPS questions
and answers
What is a simple capital structure?
A simple capital structure is when a company has only common
stock outstanding, or includes no potential common stock that upon
conversion or exercise could dilute earnings per common share.
What is earnings per share?
Earnings per share is the income common stockholders earned for
each share of common stock outstanding for a reporting period.
Earnings per share is often abbreviated EPS.
Previous
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Next
Rewind 10 seconds
Move forward 10 seconds
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0:01
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0:15
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What is the formula for basic earnings per share?
, The formula for basic earnings per share is (net income minus
preferred dividends (if any)) divided by weighted average common
stock outstanding.
What is net income, as it relates to EPS?
Net income is the income available to common stockholders at the
end of a reporting period.
How are preferred dividends treated?
Preferred dividends can be cumulative or noncumulative. If the
preferred stock is cumulative, preferred dividends for the current
reporting period are subtracted from net income whether declared
or not. On the other hand, if the preferred stock is noncumulative,
preferred dividends are subtracted from net income only if declared.
What is meant by weighted-average common stock?
Can you provide an example on how to calculate weighted-average
common stock outstanding?
A company had 8,000 shares of common stock outstanding for the
calendar year. The following equity transactions occurred during the
year:
On 4/1, 1,000 new shares were issued.
On 8/1, 3,000 shares were reacquired.
The weighted-common stock outstanding for the calendar year is
7,500 calculated as follows:
1/1 – 12/31 8,000 x (12/12) = 8,000
4/1 – 12/31 1,000 x (9/12) = 750
8/1 – 12/31 (3,000) x (5/12) = (1,250)
7,500
Can you provide an example on how to calculate weighted-average
common stock outstanding with either a stock split or stock
dividend?
