In determining basic earnings per share, dividends on nonconvertible cumulative preferred stock should be:a. deducted from net income only if declaredb. deducted from net income whether declared or notc. added back to net income whether declared or notd. disregarded

Question

Derrick Allen

Business

11 November, 02:03

In determining basic earnings per share, dividends on nonconvertible cumulative preferred stock should be:a. deducted from net income only if declaredb. deducted from net income whether declared or notc. added back to net income whether declared or notd. disregarded

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Answers (1)

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Jonas Buckley · Answer 1

b. deducted from net income whether declared or not

Explanation:

The formula to compute the basic earning per share is shown below:

Basic earning per share = (Net income - preferred stock dividend) : (weighted average of outstanding shares)

In the case of the non - convertible cumulative preferred stock, the dividend should be paid whether the business earns profit or loss. If the business does not earn any profit during a particular year, in that period the dividend amount is carried forward to next year.

So, the dividend arrears are to be paid to the cumulative preferred stock.