Lesson 32 Flashcards
What is antidilutive securities?
are securities that upon conversion or exercise INCREASE earnings per share ( or reduce the loss per share)
What is the if-converted method?
it assumes that the conversion of the convertible securities at the beginning of the period (or at the time of issuance of the security, if issued during the period) and the elimination of related interest, net of tax.
what is the treasury stock method?
it assumes that the options or warrants are exercised at the beginning of the year (or date of issue if later), and that the company uses those proceeds to purchase common stock for the treasury.
How do you know when a option and warrant is antidilutive?
whenever the exercise price exceeds the market price.
Of what will the numerator of the diluted EPS calculation consist when convertible preferred stock is being included?
Net income
Correct. When considering earnings per share where convertible securities are present, companies measure the dilutive effects using the if-converted method, assuming that the dilutive security has been converted to common stock. Therefore, the preferred dividend normally included in the numerator of the earnings per share calculation is eliminated. Therefore, the numerator will only consist of Net Income.
Which earnings per share amounts are reported in a complex capital structure?
Basic and diluted EPS
Correct. A company that has a complex capital structure is required to report both the Basic EPS and Diluted EPS on Income from continuing operations, Discontinued operations, and Net income.
The treasury stock method of computing incremental shares applies to which dilutive securities?
Stock options and warrants
Correct. The treasury stock method is only used to calculate the shares related to stock options and warrants. Convertible securities (bonds and stock) use the if-converted method.
