On January 1, 2010, Alice Corporation had 20,000 shares of $6 par value common stock and 10,000 shares of 8%, $100 par value convertible preferred stock outstanding. The preferred shares carried a 3 for 1 conversion privilege. As of December 31, 2010, none of the preferred shares had been converted. What number of shares must Alice use in computing diluted earnings per share at December 31, 2010?

Question

Quizplus · Accepted Answer

Alice must consider the potential conversion of preferred shares into common shares for diluted EPS. If all 10,000 preferred shares are converted at a 3 for 1 ratio, they would convert into 30,000 common shares. Adding these to the existing 20,000 common shares results in 50,000 shares for diluted EPS calculation.

On January 1, 2010, Alice Corporation Had 20,000 Shares of $6