In computing EPS, the equivalent number of shares of convertible preferred stock is added as an adjustment to the denominator (number of shares outstanding).
If the preferred stock is preferred as to dividends, which amount should then be added as an adjustment to the numerator (earnings available to common shareholders)?
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A. B. C. D. E.Explanation
If a capital structure has convertible preferred stock with a dilutive effect on EPS, the "if-converted" method is used. This method assumes the conversion of the preferred stock occurred at the beginning of the accounting period or at issuance, if later. The annual preferred dividend is added back to earnings available to common shareholders.