000 SHARES OF COMMON STOCK AND 500 SHARES OF 8%, $90 PAR CONVERTIBLE...

5, - UNDERSTANDING INCOME STATEMENTS 1 5, - UNDERSTANDING INCOME STATEMENTS 1 5, - UNDERSTANDING INCOME STATEMENTS 1 5, - UNDERSTANDING INCOME STATEMENTS 1
UNDERSTANDING INCOME STATEMENTS 1
5,000 shares of common stock and 500 shares of 8%, $90 par convertible preferred stock outstanding during the whole year.Each share of convertible preferred can be converted into 4 shares of common stock.Last year, Artcraft issued at par, $60,000 total face value of 6.0% convertible bonds, with each of the 60 bonds convertibleinto 110 shares of the Artcraft common stock.If Artcraft's effective tax rate is 40%, what will Artcraft report as diluted earnings per share (EPS)?غ A)$3.37.غ B)$3.12.ض C)$2.36.ExplanationDiluted EPS = adjusted earnings after conversion (EAC) / weighted average plus potential common shares outstanding.Step 1: Calculate Adjusted EACadjusted EAC: net income - preferred dividends+ dividends on convertible preferred stock+ after-tax interest on convertible debt= adjusted earnings available for common sharespreferred dividends = convertible preferred dividends = (0.08)(90)(500) = 3,600

convertible debt interest = (60,000)(0.06)(1 - 0.40) = 2,160

adjusted EAC = (30,000 - 3,600 + 3,600 + 2,160) = $32,160

Step 2: Calculate Weighted average plus potential common shares outstanding.weighted average common shares = 5,000shares from conversion of convertible preferred stock = (500 × 4) = 2,000shares from conversion of convertible bonds = (60 × 110) = 6,600weighted ave. plus potential common shares outst. =13,600Step 3: Calculate Diluted EPSDiluted EPS = 32,160 / 13,600 = $2.36.

Question #50 of 90

Question ID: 414097

Under accrual accounting, revenues are recognized in the same period in which the associated:cash is collected.invoices are billed.expenses are incurred.Accrual accounting is based on the matching principle, under which revenues are recognized in the same period that theexpenses are incurred to generate those revenues.

Question #51 of 90

Question ID: 414100

Which of the following statements regarding making changes in accounting principles is least accurate?A change in accounting principle is a change from one generally accepted accountingprinciple to another generally accepted principle. The firm making the change must justify thechange.The general rule is retrospective application.Changes in accounting estimates are now treated the same as changes in accounting principles.Changes in accounting estimates are not treated the same as changes in principles. Changes in principles are treatedretrospectively, whereas changes in accounting estimates are accounted for in the current and future periods. Both remainingstatements are accurate.

Question #52 of 90

Question ID: 414225

For the year ended December 31, 2007, Milan Company reported the following financial information:Gross profit from sales $600,000Operating expenses 100,000Unrealized loss from foreign currency translation 30,000Dividends received from available-for-sale securities 15,000Increase in minimum pension liability 45,000Interest expense 25,000Acquired treasury stock for $25,000 more than original book value 75,000Unrealized gain from available-sale-securities 20,000Ignoring taxes, calculate Milan's net income and comprehensive income for 2007.Net income Comprehensive income$490,000 $2,000$40,000 $44,000$490,000 $435,000Net income is equal to $490,000 ($600,000 gross profit - $100,000 operating expenses + $15,000 dividends received - $25,000interest expense). Comprehensive income includes all transactions that affect stockholders' equity except transactions withshareholders. Thus, comprehensive income is equal to $435,000 ($490,000 net income - $30,000 unrealized loss from foreigncurrency translation - $45,000 increase in minimum pension liability + $20,000 unrealized gain on available-for-sale securities).The treasury stock purchase is a transaction with shareholders and is not included in either comprehensive income or netincome.

Question #53 of 90

Question ID: 414108

Changes in asset lives and salvage value are changes in accounting:estimates and specific disclosures are required.principle and specific disclosures are required.estimates and no specific disclosures are required.Changes in asset lives and salvage value are changes in accounting estimates and are not considered changes in accountingprinciple. No specific disclosures are required.

Question #54 of 90

Question ID: 414149

A complex capital structure, for purposes of determining disclosure of diluted Earnings Per Share, is distinguished from a simple capitalstructure by the:company's use of debt to finance its operations.company having preferred stock outstanding.company having issued warrants, convertible securities, or options.A complex structure contains potentially dilutive securities such as options warrants or convertible securities. Where as simple capitalstructures contain no potentially dilutive securities and contains only common stock and non-convertible securities.

Question #55 of 90

Question ID: 434274

Trotters Diversified has 10,000 convertible bonds with a 6.0% coupon and $1,000 par value, each convertible into 8 shares ofcommon stock. How many shares related to the convertible bonds should be included in the denominator of basic EPS?