15 FA2 S456

Convertible bonds are considered dilutive securities because:

• They increase the number of bonds outstanding

• They may reduce earnings per share when converted

• They increase interest expense

• They cannot be exchanged for common stock

Which of the following is not a dilutive security?

• Convertible bonds

• Stock warrants

• Preferred stock (non-convertible)

• Convertible preferred stock

When computing basic EPS, the denominator is:

• Weighted-average common shares outstanding

• Ending common shares outstanding

• Total common and preferred shares

• Potential common shares outstanding

The treasury-stock method is used to account for the potential dilution from:

• Convertible bonds

• Convertible preferred stock

• Stock warrants and stock options

• Restricted stock units

If convertible bonds are converted into common stock, the effect on EPS is to:

• Increase basic EPS

• Increase diluted EPS

• Potentially reduce diluted EPS

• Eliminate basic EPS

Under the if-converted method, when calculating diluted EPS, assume:

• The bonds were converted at issuance

• The bonds were converted at year-end

• The bonds were converted at the average market price

• The bonds were never converted

Which EPS is generally the smallest value?

• Basic EPS

• Diluted EPS

• Primary EPS

• Adjusted EPS

If preferred dividends are declared, when computing EPS they are:

• Added back to net income

• Ignored

• Deducted from net income (for basic EPS)

• Deducted only in diluted EPS

Anti-dilutive securities are:

• Securities that increase EPS

• Securities that reduce EPS

• Always included in diluted EPS

• Excluded from diluted EPS computation

In the treasury-stock method, the assumed proceeds from exercise of options are:

• Ignored

• Used to buy back common shares at average market price

• Added to net income

• Used to issue preferred stock