Which Statement Concerning Earnings Per Share Is Incorrect

question 55

Multiple Choice

Which statement concerning earnings per share is incorrect?

• A) It represents a conversion of the absolute dollar amount of profit to a per share basis.
• B) Even if profits increase earnings per share could decrease if share capital increases at a greater rate than profits.
• C) Earnings per share is regarded as one of the least important financial ratios.
• D) In calculating earnings per ordinary share, preference dividends are deducted from profit.

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Definitions:

Unearned Interest Income

It is the interest earned on investments or loans that has been recorded but not yet received in cash.

Bargain Purchase Option

A lease agreement provision allowing the lessee to purchase the leased asset at the end of the lease term at a price significantly lower than the expected fair market value.

Fair Value

An estimate of the market value of an asset or liability based on current prices in active markets for similar assets or liabilities.

Lessee

A Lessee is a person or entity who leases an asset from another, the lessor, under a lease agreement.