In computing earnings per share,convertible preferred stock may increase the number of shares outstanding if it is
A) dilutive and nonconvertible.
B) dilutive and convertible.
C) antidilutive and nonconvertible.
D) antidilutive and convertible.

Question

Quizplus · Accepted Answer

Convertible preferred stock can change the number of shares outstanding if it is dilutive and convertible. Dilutive means that it will lower earnings per share if the shares were converted (because more shares would be outstanding), and convertible means that the preferred stock can be converted into common stock, increasing the overall number of shares outstanding. Therefore, only choice (B) is correct.

In Computing Earnings Per Share,convertible Preferred Stock May Increase the Number