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Chapter 16: Question 19 (page 874)

What are the computational guidelines for determining whether a convertible security is to be reported as part of diluted earnings per share?

Short Answer

Expert verified

The EPS before the change is higher than the EPS with conversion.

Step by step solution

01

The concept of convertible securities and their conversion

A convertible security is a security-generally a bond or a preferred stock that can be changed over into an alternate security-ordinarily portions of the organization's common stock. Most of the time, the convertible holder decides when to change over.

02

The computational guidelines for determining whether convertible security is to be reported as part of diluted earnings per share

Convertible securities are potentially dilutive securities and part of diluted earnings per share if their change builds the EPS numerator less of what expands the EPS denominator, i.e., the EPS with transformation is not exactly the EPS before conversion.

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Most popular questions from this chapter

Explain how convertible securities are determined to be potentially dilutive common shares and how those convertible securities that are not considered to be potentially dilutive common shares enter into the determination of earnings per share data.

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