Question

In computing earnings per share for a simple capital structure, if the preferred stock is cumulative, the amount that should be deducted as an adjustment to the numerator (earnings) is the:_______

a. preferred dividends in arrears.
b. preferred dividends in arrears times (one minus the income tax rate).
c. annual preferred dividend times (one minus the income tax rate).
d. annual preferred dividend.

Answer 1

Option(d) is the correct answer to the given question.

Step-by-step explanation:

Earnings per share shows the investors that how much of a company's net profit has been earmarked for each preferred share. The main objective of earning per share is order to provide a more correct image of the profits in the corporations with a complicated financial structure it also disclose both simple earning per share and refined earning per share .

The earning per share can be calculated by the given formula that is given below

Earning per share =
`(net income of organization share holder- annual preferred dividend.)/(average of outstanding in organization)`

So on deducted annual preferred dividend in the numerator we get earning per share that's why option(d) is correct .