Worksheets15 FA2 S456
Total questions: 15
Worksheet time: 5mins
Convertible bonds are considered dilutive securities because:
They increase the number of bonds outstanding
They may reduce earnings per share when converted
They increase interest expense
They cannot be exchanged for common stock
Which of the following is not a dilutive security?
Convertible bonds
Stock warrants
Preferred stock (non-convertible)
Convertible preferred stock
When computing basic EPS, the denominator is:
Weighted-average common shares outstanding
Ending common shares outstanding
Total common and preferred shares
Potential common shares outstanding
The treasury-stock method is used to account for the potential dilution from:
Convertible bonds
Convertible preferred stock
Stock warrants and stock options
Restricted stock units
If convertible bonds are converted into common stock, the effect on EPS is to:
Increase basic EPS
Increase diluted EPS
Potentially reduce diluted EPS
Eliminate basic EPS
Under the if-converted method, when calculating diluted EPS, assume:
The bonds were converted at issuance
The bonds were converted at year-end
The bonds were converted at the average market price
The bonds were never converted
Which EPS is generally the smallest value?
Basic EPS
Diluted EPS
Primary EPS
Adjusted EPS
If preferred dividends are declared, when computing EPS they are:
Added back to net income
Ignored
Deducted from net income (for basic EPS)
Deducted only in diluted EPS
Anti-dilutive securities are:
Securities that increase EPS
Securities that reduce EPS
Always included in diluted EPS
Excluded from diluted EPS computation
In the treasury-stock method, the assumed proceeds from exercise of options are:
Ignored
Used to buy back common shares at average market price
Added to net income
Used to issue preferred stock
Which statement is true about basic EPS?
It considers all dilutive securities
It is always less than diluted EPS
It is based only on actual common shares outstanding
It excludes preferred dividends
The denominator in diluted EPS includes:
Only actual common shares
Actual and potential common shares
Only warrants and options
Preferred shares only
If a company reports a net loss, potential common shares are:
Included in diluted EPS
Excluded from diluted EPS
Added to denominator
Ignored for basic EPS only
Which method is applied for convertible preferred stock in diluted EPS?
Treasury-stock method
If-converted method
Net realizable method
Effective interest method
The primary purpose of EPS disclosure is:
To measure dividend distribution
To show profitability on a per-share basis
To calculate stock price
To measure total equity
