Question & Answer: In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that s…..

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 times (one minus the income tax rate).

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b. annual preferred dividend times (one minus the income tax rate).

c. preferred dividends in arrears.

d. annual preferred dividend.

Expert Answer

 

Correct answer is d. annual preferred dividend.

Statementshowing Computations
Paticulars Amount
EBIT
Less Interest
Earnings before tax
Less Tax
Earnings after tax
Less Annual preference dividend
Earning available for equity shareholder

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