Abstract This article focuses on the computation of earning per share. The Accounting Principles Board of the American Institute of Certified Public Accountants has taken the position that in the computation of a corporation's earnings per common share explicit adjustment should be made for the existence of outstanding senior stock or debt which is convertible into common shares and for outstanding stock options. The Board has recommended that earnings per share be based on the number of the corporation's common shares outstanding plus the number of common shares reserved for the conversion of convertible preferred stock and convertible debentures and for stock option shares granted to employees but not yet exercised. The Board stresses the fact that the relationship between current market and conversion prices may make conversion or other contingent issuance unlikely in the foreseeable future is not sufficient basis for omission of the disclosure of the earnings per share as recommended. The guidelines laid out by the Accounting Principles Board are an important and useful first step towards achieving more useful information on earnings per share.
Bierman et al. (Mon,) studied this question.
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