Homework Answers
In determining basic earnings per share for a year, dividends in arrears on cumulative preferred stock should be deducted from net income whether declared or not.
Correct option is (c)
Basic EPS is calculated using the formula :
Earning per share = (Net income - Preferred dividend)/Number of common shares outstanding
First of all, divisible profits belong to the preferred stockholders' and hence preferred dividend is subtracted from the net income to arrive at the profits available for common stockholders'.
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