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).
b. annual preferred dividend times (one minus the income tax rate).
c. preferred dividends in arrears.
d. annual preferred dividend.
Correct answer is d. annual preferred dividend.
|Earnings before tax|
|Earnings after tax|
|Less Annual preference dividend|
|Earning available for equity shareholder|