ABC declared and paid cash dividends to its common shareholders in January of the current year. The dividend:A. Will be added to

Question

4 years ago

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ABC declared and paid cash dividends to its common shareholders in January of the current year. The dividend:A. Will be added to

the numerator of the earnings per share fraction for the current year.B. Will be added to the denominator of the earnings per share fraction for the current year.C. Will be subtracted from the numerator of the earnings per share fraction for the current year.D. Has no effect on the earnings per share for the coming year.

Business

1 answer:

Otrada [13] · Answer 1 · 2022-01-25T20:27:33+03:00

Answer:

D. Has no effect on the Earnings Per Share for the Coming Year

Explanation:

The cash dividend declared and paid by ABC in January of the Current year represent dividend declared from the profitability of the previous year and as such it will have no effect on the calcuation of Earnings Per Share of the coming year. EPS is a measure to calculate the level of profitability of a company.

The formula for EPS

= (Net Income-Preferred Dividend)/ Weighted Average Shares Outstanding

A cash dividend on common stock only affects the determination of the Total/Weighted Average Common Shares Outsanding which is the denominator of the Formula for calculating Earnings Per Share. It is also important to state that the cash dividend that will affect the Total Average Common Shares is the the dividend declared for that year and not the previous year. Hence, the dividend of the previous year paid in January cannot affect the calculation of EPS for the coming year.