At the beginning of the year, BJC has 40,000 shares of $1 par common stock outstanding. On April 1, BJC issued a 2-for-1 stock split and on July 1, BJC reacquired 20,000 shares. In addition, on October 1, BJC issued 8,000 shares of $10 par, 5% cumulative preferred stock. How many shares should BJC use for purposes of computing basic and dilutive EPS? Basic / Dilutive A. 60,000/ 60,000 B. 60,000/ 62,000 C. 70,000/ 70,000 D. 70,000/ 72,000 I get that shares is going to be the same because no dilutive securities exist. But my reason was they have a 2-1 so they have 80,000-20,000= 60,000. What am I missing here the answer is C.
the 20,000 reaquired shares were purchased on july 1. Thus, 80,000 - 20,000 (6/12) = 70,000.
We don’t know if preferred is dilutive (i don’t think pref is convertible into 8000 shares). therefore i assume basic and dilutive denominator be the same.
40000*2-20000*6/12 =70000. ( shares are repurchased on 1st July) There are only no dilutive shares.
thanks
can somebody please help me w/ this stupid qn…why the preferred cumulative shares are not potentially dilutive? Is it that they cannot be converted into common shares at all?
Won’t the question tell you whether it’s convertible or not? It should say how many shares of common it’s convertible into.
ov, Earnings Per share measures how much is giving to the common share holder. The stock being preffered should only affect the nominator unless it is a convertible share. The question WILL tell you if it can be converted, it is up to you to find out if it will be converted (ie, the stock price is higher than the excercise price). good luck!