000 STOCK OPTIONS WITH AN EXERCISE PRICE OF $32.00 PER SHARE.ALL O...

400,000 stock options with an exercise price of $32.00 per share.All of these securities were outstanding for the full year.Diluted EPS for Trotters Diversified is closest to:غ A)$1.23.ض B)$1.19.غ C)$1.50.ExplanationOnly the options and convertible preferred stock are dilutive. First, calculate basic EPS to use as a benchmark to determinedilutive capital components.Basic EPS = (net income - preferred dividends) / weighted average common shares outstanding = (9.0 - 1.5) / 5.0 = $1.50.Next, check for dilution.The stock options are dilutive because the exercise price is less than the average stock price. There is no numerator impactfrom the options. The denominator impact = # options - [(# options × exercise price) / average stock price)] = 400,000 -[(400,000 × 32) / 35] = 34,286 or 0.034 million.To check whether the convertible preferred stock is dilutive we need to determine whether it decreases EPS. To thenumerator, we add back the preferred dividend. The denominator impact = (# preferred shares × conversion rate) = 500,000× 5 = 2,500,000, or 2.5 million. Then, EPS = (9.0 - 1.5 + 1.5) / (5.0 + 2.5) = $1.20. Thus the convertible preferred stock isdilutive.To check whether the convertible bonds are dilutive we need to determine whether they decrease EPS. To the numerator, weadd back the after-tax impact of the coupon, or (face value × coupon × (1 − t)), or (10,000 bonds × 1,000 par × 0.06 coupon ×0.6 ) = 360,000, or $0.360 million. The denominator impact = (# convertible bonds × conversion rate) = 10,000 × 8 = 80,000,or 0.080 million. Then, EPS = (9.0 - 1.5 + 0.360) / (5.0 + 0.080) = $1.55. Thus the bonds are antidilutive.Finally, calculate diluted EPS:Diluted EPS = (9.0 - 1.5 + 1.5) / (5.0 + 2.5 + 0.034) = $1.1946.

Question #47 of 90

Question ID: 414172

On December 31, 2004, JME Corporation had 350,000 shares of common stock outstanding. On September 1, 2005, anadditional 150,000 shares of common stock were issued. In addition, JME had $10 million of 8% convertible bonds outstanding atDecember 31, 2004, which are convertible into 200,000 shares of common stock. Net income for 2005 was $3 million. Assumingan income tax rate of 40%, what amount should be reported as the diluted earnings per share for 2005?ض A)$5.80.غ B)$5.00.$6.00.If bonds are converted, then net income will increase by 480,000 [10 million × 0.08 × (1 − 0.4)] and shares outstanding willincrease by 200,000.numerator = 3,000,000 + 480,000 = 3,480,000denominator = 350,000 + (150,000 × 4/12) + 200,000 = 600,000diluted EPS = 3,480,000 / 600,000 = 5.80

Question #48 of 90

Question ID: 414076

When a reliable estimate of costs exists, ultimate payment is assured, and revenue is earned as costs are incurred, which of thefollowing revenue recognition methods should be used?Cost recovery method.Percentage-of-completion method.Installment sales method.The installment sales method recognizes revenue and associated cost of goods sold only when cash is received. Gross profit(sales - cost of goods sold) reflects the proportion of cash received.The cost recovery method is similar to the installment sales method but is more conservative. Sales are recognized when cash isreceived, but no gross profit is recognized until all of the cost of goods sold is collected.

Question #49 of 90

Question ID: 414188

An analyst has gathered the following information about Artcraft, Inc. for the year:Net income of $30,000.