In calculating earnings per share,the denominator of the equation includes:
A)Only common stock outstanding.
B)Common stock plus preferred stock.
C)Common stock less preferred stock.
D)The total shares of authorized common stock.

Question

Quizplus · Accepted Answer

Earnings per share is calculated by dividing the company's net income by its weighted average number of outstanding common shares. Therefore, only common stock outstanding should be included in the denominator of the equation. Preferred stock is treated separately as it has its own dividends and may impact the earnings available for common shareholders.

In Calculating Earnings Per Share,the Denominator of the Equation Includes