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16 March, 18:34

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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  1. 16 March, 20:03
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    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.
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