Assume a corporation has two potentially dilutive convertible securities outstanding. The one that should be used first to calculate diluted earnings per share is the security with the

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The security with the smaller earnings per share (EPS) adjustment should be used first in calculating diluted EPS. This is because the if-converted method of calculating diluted EPS requires that convertible securities be assumed converted if they would result in a decrease in EPS, and starting with the security that has the smallest EPS adjustment ensures that the calculation captures the most dilutive effect first.

Assume a Corporation Has Two Potentially Dilutive Convertible Securities Outstanding