Question

24. In computing earnings per share for a simple capital structure, if the preferred stock is...

24. In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the

preferred dividends in arrears.

preferred dividends in arrears times (one minus the income tax rate).

annual preferred dividend times (one minus the income tax rate).

annual preferred dividend.

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Answer #1

Answer - The Correct answer is D) Annual Preferred Dividend.

There are Two types of Preference share - Cumulative and Non cumulative Preference shares

1) Cumulative Preference share - While computing EPS the Preference Dividend shall be Deducted whether or not the Dividend is Declared . Only the current period dividends should be considered , not any dividend in arrears

2) Non Cumulative Preference share - While computing EPS the Preference Dividend shall be Deducted only when the Dividend is Declared.

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