Question 1

Calculate Diluted EPS.
- Net Income: $500,000
- Weighted Avg Common Shares: 100,000
- 10,000 Options outstanding, exercise price $20. Average market price $25.
- Convertible Bonds: 1,000 bonds, convertible into 20 shares each. Interest expense saved (net of tax) = $30,000.

Accepted Answer

1. Calculate Basic EPS. 2. Test Options (Treasury Stock Method). 3. Test Bonds (If-Converted Method). 4. Combine if dilutive.

Question 2

What mistakes do candidates make on this CPA question?

Accepted Answer

Forgetting to add back interest; miscalculating treasury stock shares.

Calculate Diluted EPS.<br/>- Net Income: $500,000<br/>- Weighted Avg Common Shares: 100,000<br/>- 10,000 Options outstanding, exercise price $20. Average market price $25.<br/>- Convertible Bonds: 1,000 bonds, convertible into 20 shares each. Interest expense saved (net of tax) = $30,000.

How to approach this question

Full Answer

Common mistakes

Practice the full CPA BAR Practice Exam 2

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