CFA Practice Question

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CFA Practice Question

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

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.

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
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