C is corrent because if the preferred stock is cumulative, then any dividends not paid in 1 year must be paid in the following years before the common shareholder can receive a dividend. Therefore, in computing EPS, the dividends on nonconvertible cumulative preferred stock must be subtracted from net income before the adjusted amount is divided by the weighted-average of common shares outstanding.
A is incorrect because if the preferred stock is cumulative, then any dividends not paid in 1 year must be paid in the following years before the common shareholder can receive a dividend. Therefore, in computing EPS, the dividends on nonconvertible cumulative preferred stock must be subtracted from net income before the adjusted amount is divided by the weighted-average of common shares outstanding.
B is incorrect because dividends on preferred stock can only be disregarded when computing EPS if the preferred stock is noncumulative and dividends have not been declared.
D is incorrect. Dividends on noncumulative preferred stock are deducted from net income only if they are declared.
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