Empire Watch Companys basic earnings per share (EPS) and diluted earnings per share (Diluted EPS) were both $2.00 in 2004, in 2005 basic EPS was $2.50 but Diluted EPS was $2.25. The fact that basic EPS and diluted EPS were the same in 2004 and different in 2005 could possibly be explained by any of the following EXCEPT:
A) the average price per share of Empire Watch’s common stock was higher in 2005.
D) Empire Watch purchased its own stock and held it as treasury stock in 2005.
I took out B and D bc they were obviously not it (convertible shares).
It’s D, but can someone explain the mechanics of A?作者: scr879 时间: 2013-4-17 19:39
if the stock price was higher in 2005 then it was likely the whatever convertible options that would dilute the stock were now in the money. since both EPS and Diluted EPS were equal in 2004 the conversions we out of the money….作者: yodacaia 时间: 2013-4-17 19:39
and for D
if the purchase of new shares was at a higher price than the conversion of debt, then even that method would be a valid reason for explaining, the diluted earnings less than basic earnings.作者: Unforseen 时间: 2013-4-17 19:39
D: Empire Watch purchased its own stock and held it as treasury stock in 2005
that would explain the rise in basic EPS, but not the drop in diluted EPS. So, how is this the correct answer? I see that’s teh false one.
Ok, for A, yes Charlee is correct.
