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Participating security belongs in a reconciled numerator-and-denominator workpaper. A participating security has rights to dividends or undistributed earnings that require an allocation under the two-class method. Read the contract for current-period participation, including nonforfeitable dividend or dividend-equivalent rights on awards.
Apply it
An unvested award receives nonforfeitable dividends whenever common shares receive them. Those rights can make the award a participating security even though its shares have not vested or entered the basic denominator.
Review participating security against participating preferred stock. Reconcile participating security to two class method, the dated participating security evidence, and its final presentation.
The participating security record ties participating preferred stock to its source date, measured amount, and two class method effect.
Keep the boundary clear
A security's title, convertibility, or preferred status does not settle participation. The enforceable distribution rights do, and loss allocation depends on the contract's obligations.
Authority
Read ASC 260-10-45-60A for including all participating securities in basic EPS.
Put the concept to work
Apply this concept
- Explain and apply participating security within a reconciled numerator-and-denominator workpaper using supplied authoritative facts.
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Build on these ideas
- Income available to common shareholders — Apply
To apply this concept: Required. This earlier step supplies an input required by the EPS workpaper.
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Use this idea next
- Two-class method — Apply
Required level here: apply. Required. This earlier step supplies an input required by the EPS workpaper.