Assume basic EPS has been determined.In determining the diluted earnings per share, the annual dividend on convertible cumulative preferred shares, which are a dilutive convertible security, should be:

Question

Quizplus · Accepted Answer

When calculating diluted EPS, the annual dividend on convertible cumulative preferred shares should be added back to the numerator of basic EPS whether declared or not. This is because the calculation assumes that the convertible securities have been converted into common stock, and thus, the dividends on those preferred shares would not have been paid out.

Assume Basic EPS Has Been Determined