ASC Topic 260
Earnings Per Share
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ASC 260 sets the rules for computing, presenting, and disclosing basic and diluted earnings per share for entities with publicly traded common stock or potential common stock. Basic EPS is income available to common stockholders (income reduced by preferred dividends declared or cumulatively accumulated, excluding amounts attributable to noncontrolling interests) divided by weighted-average shares outstanding (260-10-45-10 through 45-11A), while diluted EPS layers in all dilutive potential common shares using the treasury stock method for options and warrants (260-10-45-22 through 45-29), the reverse treasury stock method for written puts and forward purchases, and the if-converted method for convertible securities (260-10-45-40). The pieces fit together through a discipline of dilution: each issue is tested separately, ranked most to least dilutive, antidilutive items are excluded, and income (loss) from continuing operations is the control number, so a loss from continuing operations bars inclusion of any potential common shares (260-10-45-17 through 45-20). Specialized rules address contingently issuable and contingently convertible shares, the two-class method for participating securities (including unvested awards with nonforfeitable dividend rights), down round features treated as a deemed dividend, and master limited partnership earnings per unit.
Subtopics
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ASC 260-10 governs the computation, presentation, and disclosure of basic and diluted earnings per share (EPS) by entities with publicly traded common stock or potential common stock (or entities in registration). Basic EPS divides income available to common stockholders (income less preferred dividends) by the weighted-average common shares outstanding (260-10-45-10 through 45-11); diluted EPS adds all dilutive potential common shares using the treasury stock method for options/warrants, the reverse treasury stock method for written puts and forward purchases, and the if-converted method for convertible securities, never assuming antidilutive conversions (260-10-45-16 through 45-45). The subtopic also covers the two-class method for participating securities, contingently issuable shares, down round features, and master limited partnership earnings per unit.