When computing earnings per share, noncumulative preferred dividends not declared should be:
A) Ignored.
B) Deducted from earnings for the year.
C) Added to earnings for the year.
D) Deducted, net of tax effect, from earnings for the year.

Question

Quizplus · Accepted Answer

Noncumulative preferred dividends not declared should be ignored when computing earnings per share. This is because noncumulative preferred dividends do not accrue over time and therefore do not have to be paid in the future. As a result, they do not affect the calculation of earnings per share.

When Computing Earnings Per Share, Noncumulative Preferred Dividends Not Declared