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Income available to common shareholders belongs in a reconciled numerator-and-denominator workpaper. Income available to common shareholders is the basic-EPS numerator after required preferred, participating, redemption, and other adjustments. Start with income attributable to the reporting entity and preserve the statement component being tested.
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Net income attributable to the parent is $5,000,000. Current cumulative preferred dividends are $180,000, whether declared or not. Before any two-class allocation, income available to common shareholders is $4,820,000.
Review income available to common shareholders against basic earnings per share. Reconcile income available to common shareholders to preferred dividend arrearage, the dated income available to common shareholders evidence, and its final presentation.
Keep the boundary clear
Cash dividends paid are not a substitute for numerator analysis. Noncumulative dividends, cumulative preferences, accretion, participation, and income attributable to noncontrolling interests can have different effects.
Authority
Read ASC 260-10-45-11 for preferred-dividend adjustments to the basic-EPS numerator.
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- Preferred stock — Apply
To apply this concept: Required. This earlier step supplies an input required by the EPS workpaper.
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- Basic earnings per share — Apply
Required level here: apply. Required. This earlier step supplies an input required by the EPS workpaper.
- Participating security — Apply
Required level here: apply. Required. This earlier step supplies an input required by the EPS workpaper.