- CFA Exams
- CFA Level I Exam
- Study Session 7. Financial Reporting and Analysis (2)
- Reading 21. Understanding Income Statements
- Subject 7. Earnings per Share
CFA Practice Question
In calculating earnings per share, the equivalent number of convertible preferred shares are added as an adjustment to the denominator (number of shares outstanding). If the preferred shares are cumulative, which amount should then be added as an adjustment to the numerator (net earnings)?
A. Annual preferred dividend
B. Annual preferred dividend times (one minus the income tax rate)
C. Annual preferred dividend times the income tax rate
Explanation: Taxes are ignored when calculating EPS.
User Contributed Comments 2
| User | Comment |
|---|---|
| eboyd | Why aren't preferred dividends subtracted from net income in this question? |
| Allen88 | Because if the convertible preferred is converted, then no preferred dividends are distributed. |