Accounting 2 Study Guide - Earnings Per Share

31 Questions | Total Attempts: 68

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Accounting Quizzes & Trivia

When you see a company listed in the stock exchange market it shows that it is expected to offer its shareholders dividends quarterly, semiannually or annually. How much do you understand the concept of earnings per share? Take up this simple quiz below and refresh your memory. All the best!


Questions and Answers
  • 1. 
    When a company's preferred shares are non cumulative and a dividend is not declared, basic earnings per share is computed with 
    • A. 

      A deduction from net income for the stated preferred dividends

    • B. 

      An addition to net income for the stated preferred dividends

    • C. 

      A deduction from net income for the amount expected to be declared

    • D. 

      net income is not adjusted for the stated preferred dividend

  • 2. 
    Which of the following is always true relative to earnings per share?
    • A. 

      Earnings per share will never be a negative amount

    • B. 

      Earnings per share is always one amount representing net income

    • C. 

      The company must report earnings per share for continuing operations and all items reported after continuing operations

    • D. 

      All companies , public, private, and non profit must report earning per share.

  • 3. 
    When a company declares a stock split 
    • A. 

      The number of shares outstanding does not change

    • B. 

      The number of shares issued is decreased

    • C. 

      The number of shares issued and outstanding is increased

    • D. 

      Total shareholder's equity increases

  • 4. 
    When computing weighted average per shares, a stock dividend is treated as if it were declared and paid
    • A. 

      At the end of the current year

    • B. 

      On the date it was paid

    • C. 

      At the beginning of the subsequent year

    • D. 

      At the beginning of the current year

  • 5. 
    A company with a complex structure must have how many convertible securities?
    • A. 

      At least one

    • B. 

      At least 2

    • C. 

      3 or more

    • D. 

      5 or more

  • 6. 
    The computation of basic earnings per share does not consider
    • A. 

      Outstanding common shares

    • B. 

      Cumulative preferred stock dividends declared

    • C. 

      Non convertible preferred stock dividends

    • D. 

      None of the above

  • 7. 
    • A. 

      If converted method

    • B. 

      Treasury stock method

    • C. 

      Option method

    • D. 

      Diluted method

  • 8. 
    When a bond is nonconvertible, the calculation of which of the following is impacted 
    • A. 

      Basic earnings per share

    • B. 

      Diluted earnings per share

    • C. 

      Both basic and diluted earnings per share

    • D. 

      Neither basic or diluted earnings per share

  • 9. 
    The amount of preferred dividends deducted from net income in the basic earnings per share computing basic or diluted earnings per share 
    • A. 

      Total par value x the standard discount rate

    • B. 

      Total preferred shares x par value per share

    • C. 

      Total preferred shares x par value per share * stated rate

    • D. 

      Par value per share x stated rate

  • 10. 
    • A. 

      Fair market value at the end of the year

    • B. 

      Book value at the end of the year

    • C. 

      Average fair market value during the period

    • D. 

      Average book value during the period

  • 11. 
    Earnings per share represents 
    • A. 

      Earnings per common share outstanding for the period

    • B. 

      Earnings per all shares of stock issued during the period

    • C. 

      Cumulative earnings per share

    • D. 

      Earning per share authorized for the period

  • 12. 
    • A. 

      The amount of shares outstanding at various times

    • B. 

      The average shares issued during the year

    • C. 

      All convertible security that could potentially be issued

    • D. 

      Total outstanding shares at the end of a period

  • 13. 
    The amount of preferred dividends paid is calculated as 
    • A. 

      Total par value of preferred shares * stated %

    • B. 

      The total preferred shares issued * par value * stated %

    • C. 

      The stated % * preferred stock dollars reported on the balance sheet

    • D. 

      All of the above

  • 14. 
    Weighted average number of shares considers 
    • A. 

      Purchases of treasure stock a reduction to weighted average shares

    • B. 

      Reissuance of treasury stock an increase to weighted average shares

    • C. 

      Stock dividends retroactive to the beginning of the year

    • D. 

      All of the above

  • 15. 
    Fully diluted "EPS" is often 
    • A. 

      A " worse case scenario" given current earnings

    • B. 

      Very aggressive

    • C. 

      A more accurate picture of the current situation

    • D. 

      Not relevant to a potential investor

  • 16. 
    Fully diluted EPS is computed using
    • A. 

      Current actual earnings and current actual shares outstanding

    • B. 

      Current actual earnings adjusted for potential conversions and all potential shares outstanding given current convertible securities

    • C. 

      Projected earnings and current actual shares outstanding

    • D. 

      Current actual earnings and all potential shares outstanding given all future convertible securities

  • 17. 
    When a convertible bond is included in Fully diluted EPS 
    • A. 

      Interest expense is subtracted from income and weighted average shares are reduced

    • B. 

      Interest expense is included in income and weighted average shares are reduced

    • C. 

      Interest saved is added to income and weighted average shares are reduced

    • D. 

      Interest saved is added to income and weighted average shares are increased

  • 18. 
    Preferred dividends are not subtracted from net income when computing eps when 
    • A. 

      The preferred stock is cumulative and dividends are not declared

    • B. 

      The preferred stock is non cumulative and dividends are not declared

    • C. 

      The preferred stock is cumulative and dividends are declared

    • D. 

      The preferred stock is non cumulative and dividends are declared

  • 19. 
    THe "if converted" method assumes 
    • A. 

      The conversion occurred at the beginning of the year

    • B. 

      The conversion occurred at the end of the year

    • C. 

      The conversion only occurs if the convertible is anti-dilutive

    • D. 

      The convertible was not converted this period

  • 20. 
    The " treasury stock method"  related to stock options assumes 
    • A. 

      Funds received from exercise are used to repay debt

    • B. 

      Funds received from exercise are used to purchase treasury stock

    • C. 

      Funds received from exercise are used retire treasury stock

    • D. 

      Treasury stock is purchased which increases weighted average shares

  • 21. 
    A common stock equivalent is a security that 
    • A. 

      Has the potential to decrease outstanding common shares

    • B. 

      Has the same fair market value as the common stock

    • C. 

      Carries voting right equivalent to the common stock

    • D. 

      Has the potential to increase outstanding common shares

  • 22. 
    Anti- dilutive occurs when 
    • A. 

      Basic eps is greater than fully diluted eps

    • B. 

      Basic eps is less than fully diluted eps

    • C. 

      Basic eps is equal to fully diluted eps

    • D. 

      Convertible securities are not included in fully diluted eps

  • 23. 
    When earnings per share is anti- dilutive the company must 
    • A. 

      Remove the anti-dilutive convertible security from the computation

    • B. 

      Report basic eps and fully diluted eps as computed

    • C. 

      Only report basic eps

    • D. 

      None of the above

  • 24. 
    When calculating weight average shares, stock splits
    • A. 

      Are not considered in the weighted average shares calculation

    • B. 

      Are included by adding the additional shares to the total calculation

    • C. 

      And stock dividends are not considered

    • D. 

      Are considered retroactively to the beginning of the year

  • 25. 
    Fully diluted earnings per share is computed by 
    • A. 

      Ignoring basic earnings per share and doing an entirely different calculation

    • B. 

      Adjusting basic earnings per share by potential conversions to common stock

    • C. 

      Adjusting basic earnings per share for income generated from stock options

    • D. 

      Adjusting basic earnings per share for additional interest expense

  • 26. 
    Which of the following requires earnings per share for all prior years presented to be restated?
    • A. 

      Issuing stock options to employees

    • B. 

      Stock dividends and stock splits

    • C. 

      The conversion of convertible bonds

    • D. 

      Convertible preferred stock

  • 27. 
    What is the impact to earnings per share when a company retires common stock that was previously held as treasury stock 
    • A. 

      Increase

    • B. 

      Decrease

    • C. 

      No change

    • D. 

      Depends on when during the period the common stock retired

  • 28. 
    What is a common method a company uses to increase basic earnings per share ?
    • A. 

      Purchase treasury stock

    • B. 

      Issue a stock split

    • C. 

      Issue convertible bonds that pay interest

    • D. 

      Do not declare a stated divided on cumulative preferred stock

  • 29. 
    Nonconvertible, cumulative preferred stock where the dividend is not declared impacts the computation of 
    • A. 

      Basic earnings per share

    • B. 

      Diluted earnings per share

    • C. 

      Both a and b

    • D. 

      Neither a or b

  • 30. 
    Shares that may be issued given a contingent situation that is likely to occur are included in
    • A. 

      Basic weighted average shares

    • B. 

      Diluted weighted average shares

    • C. 

      Both a and b

    • D. 

      None of the above

  • 31. 
    • A. 

      Added to net income

    • B. 

      Subtracted to net income

    • C. 

      Ignored unless it was declared during the current period

    • D. 

      Ignored unless it was paid during the current period