In Computing Earnings Per Share for a Simple Capital Structure

question 119

Multiple Choice

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

• A) preferred dividends in arrears.
• B) preferred dividends in arrears times (one minus the income tax rate).
• C) annual preferred dividend times (one minus the income tax rate).
• D) None of these answers are correct.

---

Definitions:

Expensed

Expensed is the recognition of a cost as an expense on the income statement in the period in which it is incurred, rather than capitalizing it as part of an asset.

Units-of-production Method

a depreciation technique that allocates the cost of an asset over its useful life based on the number of units it produces.

Straight-line Method

A method of calculating depreciation of an asset, which spreads the cost evenly over its useful life.

Depreciation Expense

An accounting method that allocates the cost of a tangible asset over its useful life.