The dual presentation of EPS is required: A) for all corporations. B) whenever the corporation has securities outstanding that may be converted into common stock and such securities have a dilutive effect on earnings per share. C) whenever the corporation has securities that were converted into common stock during the year. D) whenever the corporation has securities outstanding that may be converted into common stock in the future. which would be the best option here?
Nopes…this is what i though so here is what shweser says: Your answer: B was incorrect. The correct answer was D) whenever the corporation has securities outstanding that may be converted into common stock in the future. The dual presentation of EPS is required whenever the corporation has securities outstanding that may be converted into common stock i.e. they are potentially dilutive. ???
I think B’s correct. can someone point out why my answer is wrong?
i think b is correct too. if the securities are anti dilutive you don’t present it even if they are convertible
I think the difference between b and d is that b says you only show the dual presentation if the securities are dilutive, and d says you show the dual presentation regardless of whether the securities are dilutive. In other words, the only condition for presentation is that the securities may be converted, not whether they are dilutive. Don’t confuse presentation with whether you include antidilutive securities in the calculation.
B is correct.
I’m pretty sure the answer is D. I’m not up on the recent rules on this stuff as it seems to change all the time, but the last time I checked into the rules they were: a) A company with potentially dilutive securities must report basic and diluted EPS even if they are the same. b) Antidilutive securities are not included in the calculation of diluted EPS (and note that there is a heirarchy there so that securities that may seem dilutive can be anti-dilutive after the dilution effect of other securities is considered which means this requires a little thought) c) There used to be some materiality threshold (like when I took these exams) but I think it’s gone now. In fact, it’s long gone now. Sigh.
D is definitely correct. You present both if you have potentially dilutive shares even if they are not in fact dilutive. Otherwise it would be left up to the user of the financial statements to assume that the potentially dilutive securities are anti-dilutive and dilutive EPS is equal to basic EPS. Accountants like to be real straight forward like that and show both.
to sum it up… a) as long as the company has some potentially dilutive securities i.e it has complex capital structure it needs to report both basic and diluted EPS b) however, the two could be same if the potentially dilutive securities are actually anti-dilutive.
Asnwer is ‘D’ … the dual presentation is needed irrespective of the dilutive (if such word exists??) nature of the potentially-dilutive securities. - Dinesh S
All sounds well, except that CFAI vol 3, page 284 said it very clearly that “companies that have only antililutive securities are not permitted to increase earnings per share and required to report only the basic EPS number”. Go figure. Dreary
What they are saying is that when security is Anti-dilutive, only the BASIC EPS Number should show up both on the Basic and the Dilutive EPS locations. The company cannot report a Higher # against the Dilutive EPS bucket.
So, are you saying that both basic and diluted numbers must be reported, with the condition that reported diluted EPS <= basic EPS at all times? Dreary
well good to know . I learned something new
cpk123 Wrote: ------------------------------------------------------- > What they are saying is that > > when security is Anti-dilutive, only the BASIC EPS > Number should show up both on the Basic and the > Dilutive EPS locations. The company cannot report > a Higher # against the Dilutive EPS bucket. This isn’t exactly right. A company with complex capital structure may have lots of potentially dilutive securities. If they are all anti-dilutive then basic and diluted EPS are the same. However, the dilutive EPS is the smallest number that you can get by including any set of the potentially dilutive securities using the treasury stock method. In most situations (and all that I can think of without doing something odd), you can line up the securities from most dilutive to least dilutive and keep adding until the EPS starts going up.
How about this one? How will dilutive securities affect earnings per share (EPS) when determining diluted earnings per share? A) Raise EPS. B) Neither raise nor lower EPS. C) Lower EPS. D) Either lower or raise EPS depending upon if the security is dilutive or antidilutive
A) Raise EPS. happens when the potentially dilutive security is Anti-dilutive B) Neither raise nor lower EPS. this is the case when the company has simple capital structure (i.e. no convertible securities) C) Lower EPS. happens when the potentially dilutive security is dilutive D) Either lower or raise EPS depending upon if the security is dilutive or antidilutive this is true, but the question already gives us that the securities are dilutive, so it’s bound to lower the EPS. So i’ll go with ‘C’ ?? - Dinesh S
It should be C. Dreary