Question

In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be

a. disregarded.
b. added back to net income whether declared or not.
c. deducted from net income only if declared.
d. deducted from net income whether declared or not.

Answer 1

In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be deducted from net income whether declared or not.

Step-by-step explanation:

In determining diluted earnings per share, dividends on nonconvertible cumulative preferred stock should be deducted from net income whether declared or not. This is because these dividends represent an obligation of the company and reducing net income by the amount of these dividends provides a more accurate measurement of earnings available to common shareholders. These dividends are deducted regardless of whether they have been declared or not, as they still represent an expense that affects the calculation of diluted earnings per share.