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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Sun Tzu who wrote (4463)	4/12/1999 8:26:00 PM
From: Boca_PETE	Read Replies (1) \| Respond to of 15132

Sun Tzu re:< More such options were counted as "outstanding for "diluted EPS" > Sorry to lose you. Let me explain further. American accounting principles require use of the so called "Treasury Stock Method" to calculate dilution for EPS. Under that method, assumed proceeds (net of income tax) from the exercise of in-the-money stock options are assumed to be repurchased by the company at the average price of the stock for the period. The difference beween the outstanding in-the-money options and the shares assumed to be repurchased at the average price for the period = additional outstanding shares for EPS (dilution). When you use the higher month-end price to repurchase shares under the Treasury Stock Method, less shares are assumed to be repurchased by the company - thus more dilution to EPS results. While this was required under APB 15, FASB Standard 128 only requires use of the average stock price to figure dilution in the calculation of "Diluted EPS". Average Outstanding Common Shares (with no added dilution) must be used for calculation "Basis EPS". You now know enough to sit for and pass the CPA exam :-) P