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Potential common shares belongs in a reconciled numerator-and-denominator workpaper. Potential common shares arise from securities or contracts that may entitle holders to common shares. Build a complete instrument inventory and assign each item to its required diluted-EPS method before testing dilution.
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The inventory may include options, warrants, convertible debt, convertible preferred stock, contingently issuable shares, and some share awards. An excluded item remains in the inventory with its quantity, method, and exclusion reason.
Review potential common shares against diluted earnings per share. Reconcile potential common shares to treasury stock method eps, the dated potential common shares evidence, and its final presentation.
The potential common shares record ties diluted earnings per share to its source date, measured amount, and treasury stock method eps effect.
Keep the boundary clear
Potential shares are not outstanding common shares for basic EPS unless separate guidance says they are. Antidilution excludes an effect from a period's diluted computation; it does not derecognize the instrument.
Authority
Read ASC 260-10-45-16 for including dilutive potential common shares.
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- Basic earnings per share — Apply
To apply this concept: Required. This earlier step supplies an input required by the EPS workpaper.
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- Contingently issuable shares — Apply
Required level here: apply. Required. This earlier step supplies an input required by the EPS workpaper.
- If-converted method — Apply
Required level here: apply. Required. This earlier step supplies an input required by the EPS workpaper.
- Incremental earnings per share — Apply
Required level here: apply. Required. This earlier step supplies an input required by the EPS workpaper.
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- Treasury-stock method for EPS — Apply
Required level here: apply. Required. This earlier step supplies an input required by the EPS workpaper.