Accounting for Earnings Per Share

Transcription

1 Accounting for Earnings Per Share Course Instructions and Final Examination Accounting for Earnings per Share Jae K. Shim CPE Edition Distributed by The CPE Store The CPE Store 819 Village Square Drive Tomball, TX

2 Accounting for Earnings Per Share Table of Contents Page Course Objectives... 3 Course Instructions... 3 Final Examination

3 COPYRIGHT The CPE Store - ALL RIGHTS RESERVED No portion of this material may be reprinted, reproduced, transmitted, stored in a retrieval system, or otherwise utilized, in any form or by any means, electronic or mechanical, including photocopying or recording, now existing or hereinafter invented, nor may any part of this course be used for teaching without written permission from the publisher and the author

4 Course Objectives After completing this course, you will be able to: Determine which companies must report earnings per share Identify components of Basic Earnings Per Share (BEPS) Recognize which computation includes dilutive convertible securities Discern what might be most indicative of a simple capital structure Recognize a situation which would require a restatement of shares outstanding Ascertain when it is assumed that a dilutive convertible security is converted into common stock when using the if-converted method Identify the appropriate method to use in the case of dilutive stock options, stock warrants, or their equivalent Determine what would occur if the average market price of a share during the period is greater than the exercise price of the option or warrant Select the type of bond which can be converted into common stock Recognize what occurs when computing diluted earnings per share Discern what might happen to earnings per share when there is a conversion or exercise of antidilutive securities Spot three required EPS disclosures Identify a difference between U.S. GAAP and IFRS requirements for calculations of basic and diluted earnings per share Determine which organization requires a reconciliation between pro forma and U.S. GAAP EPS information Course Instructions To fully benefit from this course, please follow all of the steps below. 1. Read each chapter in the text to get a good understanding of the material. 2. Answer the study guide problems which appear at the end of each chapter. After answering the problems, compare your answers with the correct answers to ensure that you understand the material. 3. When you feel that you have a good understanding of the material contained in the chapter, answer the questions on the final examination. 4. When you have completed the final examination, record your answers on the answer sheet provided and submit it for grading. A score of 70% or better is required to pass. Please also complete the course evaluation that accompanied the course and submit it to us along with your answer sheet. Upon passing you will receive a Certificate of Completion stating that you have successfully completed the course and earned the continuing education credit. Prerequisites and Advance Preparation No prerequisites or advance preparation are required for this course. CPE Credit This course is recommended for 5 CPE credits

5 Final Exam Grading Online: By Mail: By Fax: Our fastest option, with instant results. Simply go to and click the link for online grading. Just follow the instructions from there. When you finish entering your answers, you ll receive instant test results and a Certificate of Completion to print. Mail your test and course evaluation to us in the envelope provided. We grade the tests the day we receive them and mail the results and Certificate of Completion to you the following business day. Please use this option only if you need fast turnaround (we want to keep this as a free service). Just fax your answer sheet to If you need us to fax the Certificate of Completion back to you, please provide us with your fax number and write please fax back on your answer sheet. If you don t need the Certificate faxed back, please write no fax needed on your answer sheet. Refunds The CPE Store guarantees your satisfaction. If, for any reason, you are not completely satisfied with your purchase, return it to us unused within 30 days for a prompt refund, no questions asked. (Sorry, but shipping fees are not refundable.) Customer Service The CPE Store holds itself to the highest standards. If we have not met your expectations, something is missing, or you just have a question please contact us at or customerservice@cpestore.com. About Our Courses The CPE Store's courses are developed to satisfy the continuing education requirements of the American Institute of Certified Public Accountants, each state's Board of Accountancy and the National Association of State Boards of Accountancy (NASBA). If your state requires registration of sponsors, our sponsor number will appear on your Certificate of Completion. Our courses are designed to meet the continuing education requirements of accounting professionals. A great deal of care has been taken to ensure that the course material is both interesting and relevant to the practice of accounting. The information presented is, to the best of our knowledge, current and accurate. However, The CPE Store is not in the business of rendering legal, accounting or other professional advice and as such, the material presented in our courses is intended as an overview. If legal advice or other expert assistance is required, the services of a competent professional should be sought

6 Accounting for Earnings Per Share 5-Hour Course Final Examination Answer each question on the accompanying answer sheet. A score of 70% or higher is required to pass the exam. If you score less than 70% on your first attempt, we will allow you to take the test a second time. 1. According to FASB 128, Earnings Per Share (ASC ), what companies must report earnings per share? Public Companies Nonpublic Companies A. Yes No B. Yes Yes C. No No D. No Yes 2. Which of the following would be considered a nonpublic entity? A. An entity traded in a public market B. An entity traded in a foreign stock exchange C. An entity not required to file financial statements with the SEC D. An entity traded in the over-the counter market 3. Which of the following does the Basic Earnings Per Share (BEPS) take into account? A. Actual number of outstanding common shares during the period B. Effect of common shares actually outstanding C. Impact of convertible securities if dilutive D. Impact of stock options and stock warrants if dilutive 4. In the computation of, dilutive convertible securities must be included. A. Basic earnings per share only B. Diluted earnings per share only C. Diluted and basic earnings per share D. The weighted average number of preferred shares outstanding 5. With respect to the computation of earnings per share, which of the following would be most indicative of a simple capital structure? A. Common stock, preferred stock, and convertible debt outstanding B. Common stock, convertible preferred stock, and debt outstanding C. Common stock, preferred stock, and debt outstanding D. Common stock, preferred stock, and stock options outstanding 6. What is divided by the weighted-average number of shares outstanding to find Basic Earnings Per Share (BEPS)? A. Net Income B. Preferred Dividends C. Net Income plus Preferred Dividends D. Net Income minus Preferred Dividends 7. On January 1, 2012, 10,000 shares were issued. On April 1, 2012, 3,000 of those shares were bought back. What is the weighted average common stock outstanding? A. 3,000 B. 5,000 C. 7,750 D. 10,

7 Final Exam 8. In computations of weighted average of shares outstanding when a stock dividend or stock split occurs, what are the considerations given to the additional shares? A. The additional shares are weighted by the number of days outstanding B. The additional shares are weighted by the number of months outstanding C. The additional shares are considered outstanding at the end of the year D. The additional shares are considered outstanding at the beginning of the year 9. Which of the following situations accurately reflects when a restatement of shares outstanding is required? A. Issuance or repurchase of stock for cash is not restated B. Issuance of a stock dividend is not restated C. Issuance of a stock split is not restated D. Issuance of a repurchase of stock for cash, stock dividend, or stock split all are restated 10. When is it assumed that the dilutive convertible security is converted into common stock when using the ifconverted method? A. Beginning of the earliest period reported (or at time of issuance, if later) B. Beginning of the earliest period reported (regardless of time of issuance) C. Middle of the earliest period reported (regardless of time of issuance) D. Ending of earliest period reported (regardless of time of issuance) 11. In the case of two dilutive convertible securities, which one should be used first to recalculate earnings per share? A. The security with the smaller earnings adjustment B. The security with the smaller earnings adjustment per share adjustment C. The security with the greater earnings adjustment D. The security with the greater earnings adjustment per share adjustment 12. Which of the following statements accurately reflects calculating EPS with a complex capital structure? A. Convertible securities that are dilutive do not need to be included B. Options that are dilutive must be included, but warrants that are dilutive do not need to be included C. Options and Warrants that are dilutive must be included D. Contingent issuance agreements that are dilutive do not need to be included 13. Which method is used in the case of dilutive stock options, stock warrants, or their equivalent? A. If-converted method B. Treasury stock method C. Option expensing method D. Compensation method 14. What would occur if the average market price of a share during the period is greater than the exercise price of the option or warrant? A. Antidilution occurs B. Dilution occurs C. EPS increases D. EPS does not change 15. Which of the following is a type of bond that can be converted into common stock? A. Convertible Bonds B. Municipal Bonds C. Convertible Preferred Stock D. Stock Options 16. What is referred to as a certificate entitling the holder to acquire shares to stock at a certain price within a stated period? A. Bonds B. Stock options C. Stock warrants D. Convertible stocks - 6 -

8 Final Exam 17. What is the impact of warrants if the right is exercised? A. There will be is reduction of shares of common stock B. There will be additional shares of common stock C. The number of shares of common stock would remain the same D. The established price of the unexercised shares would change 18. Which of the following occurs when computing diluted earnings per share? A. Effect of convertible securities is subtracted from the weighted average number of shares outstanding B. Net effect of stock options is subtracted from the weighted average number of shares outstanding C. Effect of convertible securities is added to the weighted average number of shares outstanding D. Both the net effect of stock options and the effect of convertible securities is subtracted from the weighted average number of shares outstanding 19. If the exercise price of a warrant is $10 and the fair market value of the stock is $25, which of the following would occur? A. The treasury stock method would increase the number of shares outstanding B. The treasury stock method would decrease the number of shares outstanding C. The treasury stock method would result with the number of shares outstanding remaining the same D. The proceeds from the exercise would be sufficient to buy back all the shares 20. What is the possible result to earnings per share when there is a conversion or exercise of antidilutive securities? A. Decreases earnings per share or increases the loss per share B. Increases earnings per share or decreases the loss per share C. Increases earnings per share or increases loss per share D. Decreases earnings per share or decreases the loss per share 21. Which of the following statements accurately reflects antidilutive securities? A. Antidilutive securities should be included in the computation of diluted earnings but not basic earnings per share B. Antidilutive securities are those whose inclusion in earnings per share computations would cause basic earnings per share to exceed diluted earnings per share C. Antidilutive securities include stock options and warrants whose exercise price is less than the average market price of common stock D. Antidilutive securities should be ignored in all earnings per share calculations 22. Which of the following statements is false regarding earnings per share? A. In computing earnings per share, all antidilutive securities should be ignored B. In computing earnings per share, the aggregate of all dilutive securities must be considered C. A security is considered to be antidilutive if its inclusion does not cause earnings per share to go up D. A convertible security is antidilutive if the exercise of the convertible bond or preferred stock causes an increase in the earnings per share computation compared to that derived before the assumed conversion 23. It is not a requirement to include which of the following in EPS disclosures? A. Rights and privileges of securities B. Degree of operating leverage C. Information on capital structure D. Number of shares converted - 7 -

9 Final Exam 24. What is a difference between U.S. GAAP and IFRS requirements for calculations of basic and diluted earnings per share? A. IFRS requires EPS to be reported on the face of the income statement if the shares are traded publically B. IFRS requires calculation of the incremental shares based on a weighted-average at the end of each quarter when using the treasury stock method C. U.S. GAAP requires calculation of the incremental shares based on a weighted-average at the end of the accounting period when using the treasury stock method D. U.S. GAAP requires EPS for discontinued operations and extraordinary items 25. A reconciliation between pro forma and U.S. GAAP EPS information is required by the. A. SEC Regulation G B. SEC Regulation C C. FASB D. AICPA Thank you for taking our course. We hope you enjoyed it

10 Accounting for Earnings Per Share Course Number: AA Qualifies for 5 hours of CPE credit Name as it should appear on your Certificate: License State(s): License Number: Date Course Completed: If you are mailing or faxing your test to us for grading, please fill in Member ID and Validation number. Where should we send your results? * Answer each question A, B, C, or D, as appropriate. * Be sure you are answering questions from the Final Examination, not from the Study Guide * For instant online grading, go to and click the link for Online Services Page 1 of 1

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