The Earnings Per Share Figure Is Viewed by Many Users

question 81

Essay

The earnings per share figure is viewed by many users of financial statements as the single most important piece of information within the financial statements.A company's earnings and its earnings per share are the most commonly reported statistics reported about a company's yearly activities.
Required:
Briefly discuss the following issues:
1.If a convertible debenture exists,
a.When is it considered in calculating earnings per share? Why?
b.If including the effects of the debenture as if it were converted in the earnings per share,what calculations need to be made?
2.In applying the treasury stock method,why must the firm first use the funds to repurchase common shares for the treasury?
3.If a 10 percent stock dividend is issued halfway through the year,how many additional shares are added to the denominator of the earnings per share calculation? Does the answer change if the same number of shares are issued for cash? Why?

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Definitions:

Voting Stock

Shares in a company that grant the holder the right to vote on company matters, such as electing the board of directors.

Contingent Payment

A payment that is due only upon the occurrence of certain events specified in a contractual agreement.

Cash Flows

The overall volume of cash inflows and outflows within a business, significantly affecting its financial fluidity.

Probability-Weighted

An approach to decision-making or forecasting that involves taking into account the likelihood of various outcomes, each weighted by its probability.