The concepts this week are very abstract to me but after the reading
I think I have a better understanding. I think it is a good policy that
companies have to report convertible securities if they affect the
earnings per share (Wahlen, 2017, sec 16-8c). Without this rule it
would be easier for companies not to show debt or potential release
of convertible common stock into the market that would lower their
earning per share. This would give a false sense of performance to
shareholders and potential investors (Wahlen, 2017, sec 16-6). As a
shareholder receiving proper information is vital in making decisions
on stocks to hold or sell. For instance, in the Starbucks example in
the text there is small difference between the basic EPS and the
diluted EPS (Wahlen, 16-8g). This shows me that Starbucks is in a
healthy position because there is a low chance of a conversion of a
large number of common stocks which would lower the price.
Whalen, J. M., Jones, J. P., & Pagach, D. P. (2017). Intermediate
accounting: Reporting and analysis. Boston, MA: Cengage Learning.
