Could anybody please help me out to figure:
Why for the DEPS of ($3.00), they ALSO included 15000 shares? If the assumed conversion for the DEPS (for the net loss instance) had an “antidilutive effect”, then the assumed shares should not (I thought) be counted into the numerator data?
During all of the year just ended, Littlefield, Inc., had outstanding 100,000 shares of common stock and 5,000 shares of noncumulative, $7 preferred stock. Each share of the latter is convertible into three shares of common. For the year, Littlefield had $230,000 income from continuing operations and $575,000 of extraordinary losses; no dividends were paid or declared. Littlefield should report diluted earnings (loss) per share (DEPS) for income from continuing operations and for net income (loss), respectively, of
A. $2.30 and $(3.45).
B. $2.00 and $(3.00).
C. $2.19 and $(3.29).
D. $2.26 and $(3.39).
Answer (B) is correct.
The noncumulative convertible preferred stock is dilutive because its assumed conversion will have no effect on the DEPS numerator and will increase the denominator by 15,000 (5,000 × 3) shares. DEPS for income from continuing operations is $2.00 ($230,000 ÷ 115,000 shares). Net loss equals the $230,000 income from continuing operations minus the $575,000 extraordinary loss, or $345,000. This amount divided by the 115,000 shares results in a diluted net loss per share of $3.00.
The effect of including the convertible preferred in the calculation of the net loss per share is antidilutive. However, potential common stock that is dilutive for purposes of determining DEPS from continuing operations must be included in all calculations of diluted per-share amounts.
THANKS!!!
.
