A company with a 40% tax rate had 50,000 shares of common stock and the following three potentially dilutive issues outstanding for the entire year:

What is the correct ordering (ranking) of the dilutive issues for determining their inclusion into diluted earnings per share?

Question

A company with a 40% tax rate had 50,000 shares of common stock and the following three potentially dilutive issues outstanding for the entire year:

What is the correct ordering (ranking) of the dilutive issues for determining their inclusion into diluted earnings per share?

Quizplus · Accepted Answer

The ranking of dilutive issues is based on the potential dilutive effect. The convertible preferred stock has the highest potential dilutive effect, followed by the options, and then the convertible bonds. Therefore, the correct ranking is 3, 2, 1, making choice C the best answer.

A Company with a 40% Tax Rate Had 50,000 Shares