Austin Products reported $350,000 net income for the year with 100,000 common shares outstanding all year.Austin also had 50,000 shares of $100,8% convertible preferred shares outstanding all year.Each preferred share is convertible into 10 shares of common stock.Determine the numerator for both basic and diluted EPS.

Question

Quizplus · Accepted Answer

The preferred shares are not included in the calculation of basic EPS because they are not common shares. The numerator for basic EPS is $350,000. For diluted EPS, the numerator is the same as basic EPS because the preferred shares are convertible into common shares and are included in the calculation of diluted EPS. Therefore, there is no need to subtract the preferred dividend from the numerator for diluted EPS, making choice B the correct option.

Austin Products Reported $350,000 Net Income for the Year with 100,000