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Treasury-stock method for EPS belongs in a reconciled numerator-and-denominator workpaper. The method assumes exercise at the beginning of the period, or the issuance date if later. It uses specified assumed proceeds to repurchase shares at the average market price.
Apply it
For 100,000 options at a $12 exercise price and a $20 average market price, assumed proceeds are $1,200,000 and assumed repurchases are 60,000 shares. Incremental shares are 40,000 before other required proceeds or timing adjustments.
Review treasury-stock method for eps against potential common shares. Reconcile treasury-stock method for eps to incremental earnings per share, the dated treasury-stock method for eps evidence, and its final presentation.
Keep the boundary clear
Use the supported average price rather than period-end price. Apply required proceeds, award-cost effects, dates, and a zero floor; do not report negative incremental common shares.
Authority
Read ASC 260-10-45-23 for the treasury-stock method computation.
Put the concept to work
Apply this concept
- Explain and apply treasury-stock method for eps within a reconciled numerator-and-denominator workpaper using supplied authoritative facts.
Learning resources
Choose a lesson, try an application, or inspect the sources behind this concept.
Build on these ideas
- Potential common shares — Apply
To apply this concept: Required. This earlier step supplies an input required by the EPS workpaper.