You have just finished presenting a summary of this year's financial results to the board of directors. Included in your presentation was an income statement including both basic and diluted EPS figures. One of the board members comments that they understand basic EPS but has no clue what diluted EPS is. The board member actually wondered aloud whether this diluted EPS computation was part of some "full-employment for accountants" project. How would you further explain the concept of dilution and what diluted EPS is trying to measure to the uncertain board member?

You have just finished presenting a summary of this year's financial results to the board of directors. Included in your presentation was an income statement including both basic and diluted EPS figures. One of the board members comments that they understand basic EPS but has no clue what diluted EPS is. The board member actually wondered aloud whether this diluted EPS computation was part of some "full-employment for accountants" project. How would you further explain the concept of dilution and what diluted EPS is trying to measure to the uncertain board member?

College Accounting, Chapters 1-27

23rd Edition

ISBN:9781337794756

Author:HEINTZ, James A.

Publisher:HEINTZ, James A.

Chapter20: Corporations: Organization And Capital Stock

Section: Chapter Questions

Problem 1EC

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