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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?
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