Which of the following statements is true regarding diluted earnings per share?
A) It is assumed that stock options are exercised at the beginning of the period (or at the time the options are issued, if later) and the cash proceeds received are used to buy back (as treasury stock) as many of those shares as can be acquired at the closing market price for the period.
B) To incorporate convertible bonds into the calculation, the denominator of the EPS fraction is decreased by the additional common shares assumed.
C) To incorporate convertible securities into the calculation, the numerator is decreased by the interest (after-tax) that would have been avoided in the event of conversion.
D) Contingently issuable shares are considered outstanding in the computation of diluted EPS when any conditions for issuance are currently being met.
Answer: D) Contingently issuable shares are considered outstanding in the computation of diluted EPS when any conditions for issuance are currently being met.
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