A company already has calculated its basic earnings per share (EPS).In determining diluted earnings per share,the annual dividend on convertible cumulative preferred stock which is dilutive should be
A) added back to the number of basic EPS whether declared or not.
B) deducted from the numerator of basic EPS only if declared.
C) added back to the numerator of basic EPS only if declared.
D) deducted from the numerator of basic EPS whether declared or not.

Question

Quizplus · Accepted Answer

The annual dividend on convertible cumulative preferred stock should be added back to the number of basic EPS, whether declared or not, in order to determine the diluted earnings per share. This is because the conversion of the preferred stock into common stock could potentially dilute the earnings per share, and adding back the annual dividend on the preferred stock helps to account for this dilution.

A Company Already Has Calculated Its Basic Earnings Per Share