Started studying for REG...

Skipped ahead to federal taxation of individuals (since it's the most heavily tested), and here's a quick tip on reporting annuities:

"If a taxpayer dies before total cost of the annuity is recovered, unrecovered cost is allowed to be deducted as a miscellaneous expense on the taxpayor's final tax return."

Lol.

A quick basic EPS calculation

Remember with basic EPS calculations to subtract dividends from preferred stock when they are cumulative, whether they're declared or not. Here is a problem out a practice book to illustrate:

During the current year, Dan's Co. had outstanding: 25,000 shares of common stock, 8,000 shares of $20 par, 10% cumulative preferred stock, and 3,000 bonds that are $1,000 par and 9% convertible. The bonds were originally issued at par, and each bond was convertible into thirty shares of common stock. During the year, net income was $200,000, no dividends were declared, and the tax rate was 30%. What amount was Dan's basic earnings per share for the current year?

a. $3.38
b. $7.36
c. $7.55
d. $8.00

The EPS equation goes like this:

EPS  =

Net Income – Preferred Dividends Weighted Avg. Common Shares

The problem has a bunch of extra information, but basically we need Net Income ($200,000) and Preferred Dividends ($16,000 = 8,000 * $20 * 10%) for the numerator (top) and # of shares outstanding (25,000) for the denominator (bottom). When you plug those numbers into the equation above, you get $7.36, answer b. If you didn't subtract preferred dividends from net income, then you would have arrived at the sucker answer of d., with an EPS of $8.00.

The math here is simple, the tricky part comes in knowing to subtract cumulative preferred dividends, even though none were declared. The stuff about convertible bonds would have been relevant if the problem asked for diluted EPS, instead of basic.

SFAS No. 128 provides all the guidance you'll want on EPS. For further guidance SFAS 128 was amended by SFAS 150 and 160.