Hello,
I am confused.
Below is the copy of the question 19 from Quiz#1 in the Financial Reporting module.
I always thought, that If preferred shares are cumulative, then dividends should be subtracted from a numerator. Why not here? Redeemable options allow to buy shares back, but why would it affect the cumulative dividends option?
Thank you,
Marina
SUN has 200,000 common shares issued and outstanding as at April 30, 2015. As at April 30, 2014, 300,000 common shares were issued and outstanding. SUN required 100,000 common shares on January 31, 2015 at a cost that was $160,000 greater than the assigned value of the shares required. SUN also has 100,000 redeemable preferred shares outstanding that were issued on May 1, 2014. The shares are redeemable at the option of the holders commencing on May 1, 2017 and have a cumulative dividend rate of $2 per share. SUN has reported net income of $350,000 for the fiscal year ended April 30, 2015. What is the amount of basic earnings per share to be presented for the fiscal year ended, April 30, 2015?
Calculation for the correct answer is 1.27
Calculated as follows: $350,000 = $1.273 x 300,000 x 9/12 + (200,000 x 3/12) The preferred share dividend is not deducted from the numerator b/c the shares are to be classified as debt b/c redeemable at the option of the holders. (A) is based on a numerator of $150,000.