[bigbuk]

In regards to the numerator, i understand it is NI-Preferred Dividends. My question is, i have seen several times the question state something like; Big Co. paid pref. dividends for 16,000 in x1. But in the substance of the question will be; preferred cum. stock for $10 par, 4%, 25,000 shares issued and outstanding. My question is why would i not use the statement that they paid the dividends for 16,000 but i would use the 10,000 (25,000 x 4% x 10) ? Im assuming it has to do with the stock being cumulative, but as i understand it, it keeps accumulating until they make a declaration on it. thanks

[bigbuk]

bump

[MaLoTu]

It feels like a long time since I studied FAR (2 weeks), but is it because NI subtracted is what is declared or suppose to be paid and we are to ignore what they actually paid?

I am sorry I cannot give you a more conclusive answer, but this is what I remember and I am not sure if it will help you or not.

Almost always from my phone... please excuse my typos!

All 4 passed - 2016

CA CPA

[marqzho]

Matching principle.

if amount “paid” is used in the calculation, you could have a lower Earning per share just because you paid dividend for a previous period.

REG 90
FAR 95
AUD 98
BEC 84

[Claudia408]

@marqzho – where u been? have you taken FAR yet?

BEC 65, 71, 75
AUD 62, 70, 78
REG 67, 66, 65, 66, 64
FAR 68, 64, 73

BEC - 75 (3x)
AUD - 78 (3x)
REG - 67, 66, Aug 1
FAR - 54, Sept 8

[Kairos]

I think it might help if the question was posted but if i'm understanding correctly, you're asking why not use the amount $16,000 (the amount paid) as opposed to the $10,000 (20X2 dividends owed) in the EPS calculation?

The $16,000 paid is a distractor and in this case, 2 years worth of dividends are accrued and not paid (so that would be $20,000 accrued)

because the payment is only $16,000, which isn't enough to cover the full $20,000, the numerator in the EPS calculation would just be 500,000 – 10,000

on the other hand if management declared a $25,000 dividend, the numerator for the EPS calculation would be 500,000 – 10,000 – 5,000 where you're subtracting the 5,000 excess (25,000 – 20,000)

[Author]

Replies