Chapter 16: Dilutive Securities and Earnings per Share

What effect do stock dividends or stock splits have on the computation of the weighted-average number of shares outstanding?

Define the following terms. (a) Basic earnings per share. (b) Potentially dilutive security. (c) Diluted earnings per share. (d) Complex capital structure. (e) Potential common stock.

What are the computational guidelines for determining whether a convertible security is to be reported as part of diluted earnings per share?

Discuss why options and warrants may be considered potentially dilutive common shares for the computation of diluted earnings per share.

Explain how convertible securities are determined to be potentially dilutive common shares and how those convertible securities that are not considered to be potentially dilutive common shares enter into the determination of earnings per share data.

Explain the treasury-stock method as it applies to options and warrants in computing dilutive earnings per share data.

Earnings per share can affect market prices of common stock. Can market prices affect earnings per share? Explain.