Question

In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the:________a. preferred dividends in arrears.b. preferred dividends in arrears times (one minus the income tax rate).c. annual preferred dividend times (one minus the income tax rate).d. none of these.

Answer 1

Answer: D. none of these.

Explanation:

When the earnings per share for a simple capital structure is being computed, then if the preferred stock is cumulative, it should be noted that the amount that should be deducted as an adjustment to the numerator (earnings) is referred to as the annual preferred dividend.

Therefore, from the options given, the answer will be none of these.