Asked by Karan Kahlon on Jul 02, 2024
Verified
Which statement best reflects the issues associated with the computation of diluted earnings per share?
A) Diluted earnings per share represents the potential impact of all shares of common stock.
B) When presenting comparative financial statements, the impact of convertible bonds must be included for both years.
C) Common stock options are considered dilutive when the average market price is greater than the option price.
D) The impact on the denominator is always the determinate of whether or not to use diluted earnings per share.
Convertible Bonds
Bonds that can be converted into a predetermined number of the issuing company's shares at certain times during its life, usually at the discretion of the bondholder.
Common Stock Options
Financial derivatives that give the holder the right, but not the obligation, to buy or sell shares of a company's common stock at a set price before the option expires.
- Interpret the impact of diluted EPS calculations, including the treatment of convertible securities and options.
Verified Answer
SN
Shatonia Newsom6 days ago
Final Answer :
C
Explanation :
Common stock options are considered dilutive when the average market price of the stock is greater than the option exercise price, as this implies that option holders would benefit from converting their options into common stock, thereby increasing the number of shares outstanding and potentially diluting earnings per share.
Learning Objectives
- Interpret the impact of diluted EPS calculations, including the treatment of convertible securities and options.