The effect of convertible preferred stock on the computation of Diluted EPS is based on which method?

Available Options Are:

a. If Converted

b. Treasury Stock

c. Retroactive

d. Cumulative

Option A. If Converted

Explanation:

The diluted Earnings Per Share helps in understanding the tailoring picture of the entity by assuming that all the convertibles are exercised. This assumption gives us understanding that how much in fact our shares are earning. This means the assumption is If Converted and the option A is correct.

Treasury Stock method deals with the generation of stock due to in the money warrants and share options which is not connected with the convertibles. Hence the option B is incorrect.

Option C is also incorrect because retroactive adjusted previous balances for the sake of changes in policies and this is for bringing fairness to the statement of financial statements. It means it is not concerned with converting convertibles into ordinary shares.

Option D is incorrect because the in this method the accumulating of earnings of the company by taking the difference of 2 openings Retained earnings with prior method and new method and the net effect is reported in the financial statements retrospectively as it is considered a change in policy. This means it is not connected with the convertibles assumption and the option D is incorrect.

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