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A dilutive security can be either a bond or a preferred stock. The reason they are referred to as a dilutive security is because the security can be converted into common stock and share in the 'earnings per share' computation. The addition of the dilutive securities will then dilute the earnings per share that is available to the actual holders of common stock. The questions is, since the securities have not actually been converted into common stock at year's end, why should they be treated as if they have been when the EPS is computed?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9439959

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