When we take into account the dilutive effect of stock options, rights, and warrants in the calculation of EPS, the method used is called the:
A) Optional method.
B) If converted method.
C) Dilution method.
D) Treasury stock method.

Question

Quizplus · Accepted Answer

The Treasury stock method is used to calculate the dilutive effect of stock options, rights, and warrants on the earnings per share (EPS). This method assumes that the proceeds from the exercise of options, rights, and warrants are used to buy back shares at the average market price, thus minimizing the dilution of EPS.

When We Take into Account the Dilutive Effect of Stock