Diluted EPS / Convertible Preferred / Stock Dividend

Hi all, When calculating diluted EPS for a company with dilutive preferred shares, and a stock dividend is involved, how do we account for this? My first instinct would have been to A) Assume the preferreds are converted at the beginning of the year as usual and B) Retroactively apply the stock dividend to initial outstanding shares and newly converted preferreds. (i.e. it does not matter when the stock dividend occurs, it would always hit up the # of preferreds converted). However, the solution to a practice problem from a website seems to contradict my gut feeling… The stock dividend is not applied to the convertible preferreds. Is this correct? And if so, could you please explain to me why it is this way?