Question

Which of the following would prevent Norbert Company from having a simple capital structure for the purpose of reporting EPS?

A. cash dividends
B. stock dividends
C. convertible preferred stocks
D. nonconvertible preferred stocks
E. nonconvertible bonds

Answer 1

Convertible preferred stocks would prevent Norbert Company from having a simple capital structure because they can be converted into common shares, potentially diluting EPS.

option c is the correct

Step-by-step explanation:

The question at hand concerns what factors would prevent Norbert Company from having a simple capital structure necessary for reporting earnings per share (EPS).

According to accounting standards, a simple capital structure is one that contains no potential convertible securities, options, or warrants that could dilute EPS.

Therefore, the correct answer from the provided choices would be 'C. convertible preferred stocks'. This is because holders of convertible preferred stocks have the option to convert their preferred shares into common shares, which could potentially dilate the EPS.

This is different from nonconvertible bonds or preferred stocks, which do not have such conversion features, and the issuance of dividends (cash or stock) that does not change the number of potential common shares.