Question

You have been provided with accounting research tools. Use them to answer the following multiple choice...

You have been provided with accounting research tools. Use them to answer the following multiple choice questions. After you make your choice, tell me what theory you are basing your answer on, or what part of the codification applies to the question (explain). As you may have guessed, this is an open book quiz.

The treasury stock method of computing diluted earnings per share will increase the number of shares outstanding whenever the exercise price of an option or a warrant is

a. Below the market price of the common stock.

b. Greater than the market price of the common stock.

c. Below the par value of the common stock.

d. Equal to the market price of the common stock.

On June 1, Laural Corporation issued convertible debt securities that were properly classified as potential common shares. When computing year-end earnings per share at December 31, Laural Corporation would include the convertible securities in the computation of diluted earnings per share (DEPS) only if they

a. Have been converted.

b. Are antidilutive.

c. Are dilutive.

d. Have been exercised.

EPS amounts must be disclosed on the face of the income statement for

Income from continuing operations/ results of discontinued operations

a. Yes yes

b. Yes No

c. No Yes

d. No No

Business   Accounting   
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Homework Answers

Answer #1

1) a) Below the market price of the common stock.

The treasury stock method of computing diluted earnings per share will increase the number of shares outstanding whenever the exercise price of an option or warrant is below the market price of the common stock.

2) c) Are dilutive

Potential common shares are included to calculate diluted earnings per share only if they are dilutive. If they are anti dilutive, it is ignored. The main purpose of calculating dilutive earnings per share is to show the effect of potential common shares. If they have been converted or exercised, the same would have been used in calculating Basic earnings per share.

3) a) Yes Yes

As per IAS 33, a company must disclose basic and diluted earnings per share in both the cases i.e. Income from continuing operatins / results of discontinued operations.

  

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