Smythe, Inc. has four potentially dilutive securities. Computation of the antidilution sequencing recorded the following: $$\begin{array} { | l | c | c | }
\hline{ \text { Security } } & \text { Increase in Income } & \text { Increase in Common Shares } \
\hline \text { Convertible Preferred Stock } & \$ 40,000 & 10,000 \
\hline \text { Stock Warrants } & \$ 0 & 1,000 \
\hline \text { Stock Options } & \$ 0 & 14,000 \
\hline \text { Convertible Bonds } & \$ 17,000 & 5,000 \
\hline
\end{array}$$
What is the correct order of entry into the EPS computation? (Round any calculations to the nearest cent.)

Question

Smythe, Inc. has four potentially dilutive securities. Computation of the antidilution sequencing recorded the following: $$\begin{array} { | l | c | c | } 
\hline{ \text { Security } } & \text { Increase in Income } & \text { Increase in Common Shares } \
\hline \text { Convertible Preferred Stock } & \$ 40,000 & 10,000 \
\hline \text { Stock Warrants } & \$ 0 & 1,000 \
\hline \text { Stock Options } & \$ 0 & 14,000 \
\hline \text { Convertible Bonds } & \$ 17,000 & 5,000 \
\hline
\end{array}$$ 
What is the correct order of entry into the EPS computation? (Round any calculations to the nearest cent.)

Quizplus · Accepted Answer

The correct order is determined by the incremental effect on EPS, starting with the most dilutive. Stock options and stock warrants have no income increase, so they are considered first. Among them, stock options have a larger increase in shares. Convertible bonds and preferred stock are considered next based on their effect on EPS.

Smythe, Inc What Is the Correct Order of Entry into the EPS