- CFA Exams
- CFA Exam: Level I 2021
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 21. Understanding Income Statements
- Subject 7. Earnings per Share

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**CFA Practice Question**

Which of the following statements regarding basic and diluted earnings per share (EPS) is TRUE?

B. If diluted EPS is less than basic EPS, the convertible securities are said to be antidilutive.

C. Neither basic nor diluted EPS considers antidilutive securities in its computation.

A. To calculate diluted EPS, use net income less preferred dividends in the numerator.

B. If diluted EPS is less than basic EPS, the convertible securities are said to be antidilutive.

C. Neither basic nor diluted EPS considers antidilutive securities in its computation.

Correct Answer: C

Basic EPS does NOT consider the effects of dilutive securities. To calculate diluted EPS, dividends on convertible preferred stock and the after-tax interest on convertible debt need to be added to net income in the numerator. If diluted EPS are more than basic EPS, the convertible securities are antidilutive and should NOT be used in computing diluted EPS.

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**User Contributed Comments**
7

User |
Comment |
---|---|

wroger |
What is wrong with B? |

poker |
the opposite of B is true. |

jerrick |
for B to be true... diluted eps should be GREATER than basic eps |

julescruis |
read the question roger |

MattNYC |
Use the following rule = Anitdilutive -> ignore |

ldfrench |
more like "Wronger" haha right, you guys? |

Znanje35 |
HAHA |