This paper deals with how the primary earnings per share should be affected by common stock equivalents. Following the present rules there can be convertible bonds which should be converted but are not converted because their conversion will adversely affect primary earnings per share. Two accounting issues studied are (1) Should common stock equivalency be determined at time of issue? (2) Should there be no dilution if the stock price is less than the conversion price or less than the exercise price of a warrant or option? The author answers no to the first question and yes to the second. He recommends present disclosure of future distribution on a pro forma basis.
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References
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