Question

True or false:

1. If Home Depot eventually becomes bankrupt, its preferred shareholders carry senior positions as claimants in bankruptcy vis-à-vis common shareholders.

2. Retained earnings and accumulated other comprehensive income (AOCI) can be found in

3. A re-issuance of treasury stock at a price lower than what it was repurchased for results in a loss on the income statement.

4. Comprehensive income is a more inclusive notion of company performance because it includes gains and losses that bypass net income but affect stockholders' equity.

5. Because diluted EPS includes dilutive securities such as convertible securities and employee stock options, it must always be less than or equal to basic EPS.

Answer 1

1 True , because preferred shareholders have higher ranking over common shareholders during bankruptcy.

2 False, Other comprehensive income is a part of retained earnings which include mostly unrealised gains.

3 False, because the journal entry for reissuance of treasury stock at price below the repurchsed cost willbe like, cash recived will debited to cash account and credit teasury stock while the difference will be posted to as debited paid in capital account.

4 True, because it is considered that the OCI includes more info about the company performance which do not form part of income statement.

5 True, Generally , DEPS is lower or equal to EPS because it consider the convertible instruments which indicates that the profit will be distributed among more stakeholders.