[mikecuh]

So I was under the impression that basic EPS is simply calculated as Net Income – Preferred Dividends / WACSO. But then I came across this question.

Which of the following items, if dilutive and if other conditions are met, would enter into the determination of the weighted average shares outstanding to be used in the basic earnings per share (basic EPS) calculation?

I.

Stock options.

II.

Contingent shares.

a.

Both I and II.

b.

I only.

c.

Neither I nor II.

d.

II only.

Answer: d. Contingent shares (that are dilutive) are included in the calculation of basic earnings per share (EPS) if (and as of the date) all conditions for issuance are met. Stock options do not enter into the calculation of basic EPS.

Can somebody please clarify exactly what goes into Basic EPS WACSO and what goes into Diluted EPS WACSO? Is there any difference?

[reenz]

As per my knowledge, In BASIC EPS for WASCO we take common stock which is outstanding not preferred stock, including treasury stock adjustment if any & contingent shares like in this problem,only if the conditions are met.

DILUTED EPS for the denominator we use WASCO same as basic + any shares converted + any bonds converted to common stock using the time weighted avg .

hope i could help you.

[reenz]

As per my knowledge, In BASIC EPS for WASCO we take common stock which is outstanding not preferred stock, including treasury stock adjustment if any & contingent shares like in this problem,only if the conditions are met.

DILUTED EPS for the denominator we use WASCO same as basic + any shares converted + any bonds converted to common stock using the time weighted avg .

hope i could help you.

[AnaTG]

If you are using Becker, more specifically the 2013 edition, the F7 lecture on page 30 has item “E” for “Dilution from contingent shares”. It says that “contingent issuable shares do not require cash consideration and depend on some future event or on certain conditions being met. Contingent shares (that are dilutive) are also included in the calculation of basic EPS if (and as of the date) all conditions for issuance are met”.

[AnaTG]

If you are using Becker, more specifically the 2013 edition, the F7 lecture on page 30 has item “E” for “Dilution from contingent shares”. It says that “contingent issuable shares do not require cash consideration and depend on some future event or on certain conditions being met. Contingent shares (that are dilutive) are also included in the calculation of basic EPS if (and as of the date) all conditions for issuance are met”.

[Author]

Replies