Multiple Choice Answers

Given the following convertible securities, determine the appropriate ranking to determine their impact on diluted earnings per share calculations:

1) 10% convertible preferred stock with dividends of $6,000 declared during the year and shares convertible into 2,500 common shares

2) 6% convertible bonds with interest expense (net of taxes) of $7,000 and convertible into 3,500 common shares

3) 8% convertible bonds with interest expense (net of taxes) of $4,000 and convertible into 1,600 common shares (Points : 2)
1, 2, 3
3, 1, 2
2, 1, 3
1, 3, 2

Which of the following items would not be included in a basic earnings per share calculation? (Points : 2)
undeclared dividends on noncumulative preferred stock
declared dividends on noncumulative preferred stock
undeclared dividends on cumulative preferred stock
declared dividends on cumulative preferred stock

When calculating earnings per share, dividends declared on noncumulative preferred stock, but not paid, should be (Points : 2)
added to net income in the earnings per share numerator
excluded from the earnings per share numerator
deducted from net income in the earnings per share numerator
deferred from the earnings per share numerator until paid

How will a company’s working capital and net income be affected by the recording of a cash dividend on the declaration date? (Assume the dividend is paid on a later date.)

Working Capital Net Income (Points : 2)
decrease decrease
decrease no effect
no effect no effect
no effect decrease