In Calculating Basic Earnings Per Share, If the Preferred Shares

question 47

Multiple Choice

In calculating basic earnings per share, if the preferred shares are cumulative, the amount that should be deducted as an adjustment to the numerator is the

• A) annual preferred dividend.
• B) preferred dividends in arrears.
• C) annual preferred dividend times (one minus the income tax rate).
• D) preferred dividends in arrears times (one minus the income tax rate).

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Definitions:

Purchases Discount

A deduction from the stated purchase price, often granted to encourage early payment or bulk buying.

Periodic Inventory System

A method that relies on occasional physical counts of inventory to determine the ending inventory balance and the cost of goods sold.

Purchase Return

Occurs when a buyer returns merchandise to the seller for a refund or credit due to various reasons such as defects or dissatisfaction.