Which of the following is correct regarding earnings per share (EPS)?
A) If preferred stock is outstanding, dividends declared on the preferred stock are always deducted from net income in calculating EPS.
B) EPS can never be negative.
C) If income from continuing operations is less than zero, potentially dilutive securities are anti-dilutive.
D) All issues of convertible to common stock must be included in the calculation of diluted EPS.

Question

Quizplus · Accepted Answer

If income from continuing operations is less than zero, potentially dilutive securities are anti-dilutive. This means that the potentially dilutive securities, such as convertible bonds or stock options, would not have a dilutive effect on EPS because their exercise or conversion would decrease the loss per share. A and D are incorrect because preferred dividends are not always deducted from net income in calculating EPS, and not all convertible securities necessarily need to be included in the calculation of diluted EPS. B is incorrect because EPS can be negative if the company reports a loss.

Which of the Following Is Correct Regarding Earnings Per Share