[Frances]

Is there a quick way to determine whether convertible items are dilutive? My understanding is that you have to test each convertible item individually for dultive effects prior to combining everything to calculate diluted EPS. This is very time-consuming for multiple-choice questions.

How is everyone approaching these problems? Is there a quick way to test? Should I assume that all potentially dilutive convertibles will be dilutive?

Thank you for your help!

[Anonymous]

Per my Becker book, (Pg. F8-12 if you have Becker), ALL convertible bond or convertible preferred stock will be considered in the calculation of diluted EPS.

Options and warrants are only dilutive if they are “in the money”. Ie. this means the contract price is less than the market price.

Remember to adjust available earnings for after-tax interest expense avoided and preferred distributions if applicable.

[Author]

Replies