# ASC 260-10-55: Earnings Per Share — Overall — 55 Implementation Guidance and Illustrations Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/260/10/#55-implementation-guidance-and-illustrations) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:dbca43b2ef1c9652a0e814c0d4fc4f9d0313c171c7f4906e1f0026bd71d6c49f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 260-10-55: 55 Implementation Guidance and Illustrations [Read section](https://asc.understandingaccounting.org/asc/260/10/#55-implementation-guidance-and-illustrations) SEC content: no #### Implementation Guidance ##### [260-10-55-1](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-1) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:ccd92093b4e0c5a8d53e8c8aa0643c735302e589f7672a308bcde705d5584a5a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Section, which is an integral part of the requirements of this Subtopic, provides general guidance to be used in the computation of [earnings per share](https://asc.understandingaccounting.org/glossary/e/#earnings-per-share "The amount of earnings attributable to each share of common stock. For convenience, the term is used to refer to either earnings or loss per share.") (EPS). ##### [260-10-55-2](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-2) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:208944732c7248d3739efaf0362b4cd952e033760d3846f12befd10a638f17f8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The weighted-average number of shares is an arithmetical mean average of shares outstanding and assumed to be outstanding for EPS computations. The most precise average would be the sum of the shares determined on a daily basis divided by the number of days in the period. Less-precise averaging methods may be used, however, as long as they produce reasonable results. Methods that introduce artificial weighting, such as the Rule of 78 method, are not acceptable for computing a weighted-average number of shares for EPS computations. ##### [260-10-55-3](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-3) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:67c73f48b0dcbbc7ad6d220992f85624bc2e5375757bbe0cb626ad0f7898994b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The number of incremental shares included in quarterly diluted EPS shall be computed using the average market prices during the three months included in the reporting period. For year-to-date diluted EPS, the number of incremental shares to be included in the denominator shall be determined by computing a year-to-date weighted average of the number of incremental shares included in each quarterly diluted EPS computation. Example 1 (see paragraph [260-10-55-38](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-38)) provides an illustration of that provision. ##### [260-10-55-3A](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-3A) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:8fc88bbce9b5423224ec600fd2d1fc1aeb35d4bff4c06e0f129dbfd0ca944835 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Computation of year-to-date diluted EPS when an entity has a year-to-date loss from continuing operations including one or more quarters with income from continuing operations and when in-the-money options or warrants were not included in one or more quarterly diluted EPS computations because there was a loss from continuing operations in those quarters is as follows. In computing year-to-date diluted EPS, year-to-date income (or loss) from continuing operations shall be the basis for determining whether or not dilutive potential common shares not included in one or more quarterly computations of diluted EPS shall be included in the year-to-date computation. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [260-10-65-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-65-5)Computation of year-to-date diluted EPS when an entity has a loss from continuing operations in one or more quarters (regardless of whether the entity has a year-to-date income or loss from continuing operations) and when in-the-money options or warrants were not included in one or more quarterly diluted EPS computations because the effect was antidilutive (for example, there was a loss from continuing operations in those quarters) is as follows. In computing year-to-date diluted EPS, year-to-date income (or loss) from continuing operations shall be the basis for determining whether or not dilutive potential common shares not included in one or more quarterly computations of diluted EPS shall be included in the year-to-date computation on a weighted-average basis. ##### [260-10-55-3B](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-3B) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:962e25bde3100af485928df428dd563698d27a8bb26d38947dda48c1de032bcd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Therefore: 1. a When there is a year-to-date loss, potential common shares should never be included in the computation of diluted EPS, because to do so would be antidilutive. 2. b When there is year-to-date income, if in-the-money options or warrants were excluded from one or more quarterly diluted EPS computations because the effect was antidilutive (there was a loss from continuing operations in those periods), then those options or warrants should be included in the diluted EPS denominator (on a weighted-average basis) in the year-to-date computation as long as the effect is not antidilutive. Similarly, contingent shares that were excluded from a quarterly computation solely because there was a loss from continuing operations should be included in the year-to-date computation unless the effect is antidilutive. Example 12 (see paragraph [260-10-55-85](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-85)) illustrates this guidance. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [260-10-65-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-65-5)[Paragraph superseded by Accounting Standards Update No. 2025-12.](https://asc.understandingaccounting.org/updates/asu-2025-12/) ##### [260-10-55-3C](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-3C) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:ac29c351255b2d12c61962abcbe551e64d482f2c706e5fc78d54a601be088f87 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [260-10-65-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-65-5)If in-the-money options or warrants were excluded from one or more quarterly diluted EPS computations because the effect was antidilutive, then those options or warrants should be included in the diluted EPS denominator (on a weighted-average basis) in the year-to-date computation as long as the effect is dilutive. Similarly, contingent shares that were excluded from a quarterly computation because the effect was antidilutive to that quarter should be included in the year-to-date computation if the effect is dilutive to the year-to-date period. Example 12 (see paragraph [260-10-55-85](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-85)) illustrates this guidance. ##### [260-10-55-4](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-4) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:dd70d3a1f10958e6194684487c88ece3a8bb83dff2f199276790880a43b3a4c3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The average market price of [common stock](https://asc.understandingaccounting.org/glossary/c/#common-stock "A stock that is subordinate to all other stock of the issuer. Also called common shares.") shall represent a meaningful average. Theoretically, every market transaction for an entity's common stock could be included in determining the average market price. As a practical matter, however, a simple average of weekly or monthly prices usually will be adequate. ##### [260-10-55-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-5) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:761c9e53ab0193106823f31231d19f46162f23ff47b3a220e3d0ce115913b3c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Generally, closing market prices are adequate for use in computing the average market price. When prices fluctuate widely, however, an average of the high and low prices for the period that the price represents usually would produce a more representative price. The method used to compute the average market price shall be used consistently unless it is no longer representative because of changed conditions. For example, an entity that uses closing market prices to compute the average market price for several years of relatively stable market prices might need to change to an average of high and low prices if prices start fluctuating greatly and the closing market prices no longer produce a representative average market price. ##### [260-10-55-6](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-6) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:ed5e22afce3460e740f52120bfedfc6ae82e0dffef89a9168455de946cf53e29 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Options](https://asc.understandingaccounting.org/glossary/o/#option "Unless otherwise stated, a call option that gives the holder the right to purchase shares of common stock from the reporting entity in accordance with an agreement upon payment of a specified amount. Options include, but are not limited to, options granted and stock purchase agreements entered into with grantees. Options are considered securities. See Call Option.") or warrants to purchase convertible securities shall be assumed to be exercised to purchase the [convertible security](https://asc.understandingaccounting.org/glossary/c/#convertible-security "A security that is convertible into another security based on a conversion rate. For example, convertible preferred stock that is convertible into common stock on a two-for-one basis (two shares of common for each share of preferred).") whenever the average prices of both the convertible [security](https://asc.understandingaccounting.org/glossary/s/#security "The evidence of debt or ownership or a related right. It includes options and warrants as well as debt and stock.") and the common stock obtainable upon conversion are above the [exercise price](https://asc.understandingaccounting.org/glossary/e/#exercise-price "The amount that must be paid for a share of common stock upon exercise of an option or warrant.") of the options or warrants. However, exercise shall not be assumed unless conversion of similar outstanding convertible securities, if any, also is assumed. The [treasury stock method](https://asc.understandingaccounting.org/glossary/t/#treasury-stock-method "A method of recognizing the use of proceeds that could be obtained upon exercise of options and warrants in computing diluted EPS. It assumes that any proceeds would be used to purchase common stock at the average market price during the period.") shall be applied to determine the incremental number of convertible securities that are assumed to be issued and immediately converted into common stock. Interest or dividends shall not be imputed for the incremental convertible securities because any imputed amount would be reversed by the if-converted adjustments for assumed conversions. ##### [260-10-55-7](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-7) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:76e0effac1113dbf2dc32dfd250198dac48b81d633409ef5532b9504ae9b9e30 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs [260-10-55-9 through 55-11](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-9) provide guidance on how certain options and warrants should be included in the computation of diluted EPS. Exercise of the potential common shares discussed in those paragraphs shall not be reflected in diluted EPS unless the effect is dilutive. Those potential common shares will have a dilutive effect if either of the following conditions is met: 1. a The average market price of the related common stock for the period exceeds the exercise price. 2. b The security to be tendered is selling at a price below that at which it may be tendered under the [option](https://asc.understandingaccounting.org/glossary/o/#option "Unless otherwise stated, a call option that gives the holder the right to purchase shares of common stock from the reporting entity in accordance with an agreement upon payment of a specified amount. Options include, but are not limited to, options granted and stock purchase agreements entered into with grantees. Options are considered securities. See Call Option.") or [warrant](https://asc.understandingaccounting.org/glossary/w/#warrant "A security that gives the holder the right to purchase shares of common stock in accordance with the terms of the instrument, usually upon payment of a specified amount.") agreement and the resulting discount is sufficient to establish an effective exercise price below the market price of the common stock obtainable upon exercise. ##### [260-10-55-8](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-8) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:bc02e52281380d681606973ecfc299640114944cf526846cfee599468ff9b9c1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When several conversion alternatives exist, the computation shall give effect to the alternative that is most advantageous to the holder of the convertible security. Similar treatment shall be given to [preferred stock](https://asc.understandingaccounting.org/glossary/p/#preferred-stock "A security that has preferential rights compared to common stock.") that has similar provisions or to other securities that have conversion options that permit the investor to pay cash for a more favorable [conversion rate](https://asc.understandingaccounting.org/glossary/c/#conversion-rate "The ratio of the number of common shares issuable upon conversion to a unit of a convertible security. For example, $100 face value of debt convertible into 5 shares of common stock would have a conversion ratio of 5:1. Also called conversion ratio."). ##### [260-10-55-9](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-9) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:c9db257e8a77990dbc1151d31d28ba19db3b58aa45b69a671326c5e53478a642 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Options or warrants may permit or require the tendering of debt or other securities of the issuer (or its parent or its [subsidiary](https://asc.understandingaccounting.org/glossary/s/#subsidiary "An entity, including an unincorporated entity such as a partnership or trust, in which another entity, known as its parent, holds a controlling financial interest. (Also, a variable interest entity that is consolidated by a primary beneficiary.)")) in payment of all or a portion of the exercise price. In computing diluted EPS, those options or warrants shall be assumed to be exercised and the debt or other securities shall be assumed to be tendered. If tendering cash would be more advantageous to the option holder or warrant holder and the contract permits tendering cash, the treasury stock method shall be applied. Interest (net of tax) on any debt assumed to be tendered shall be added back as an adjustment to the numerator. The numerator also shall be adjusted for any nondiscretionary adjustments based on income (net of tax). The treasury stock method shall be applied for proceeds assumed to be received in cash. ##### [260-10-55-10](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-10) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:868892f41c6ce1bd86726bda3effe2a8c6cf8150b95719f0a7e71f2ef24c5944 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The underlying terms of certain options or warrants may require that the proceeds received from the exercise of those securities be applied to retire debt or other securities of the issuer (or its parent or its subsidiary). In computing diluted EPS, those options or warrants shall be assumed to be exercised and the proceeds applied to purchase the debt at its average market price rather than to purchase common stock under the treasury stock method. The treasury stock method shall be applied, however, for excess proceeds received from the assumed exercise. Interest, net of tax, on any debt assumed to be purchased shall be added back as an adjustment to the numerator. The numerator also shall be adjusted for any nondiscretionary adjustments based on income (net of tax). ##### [260-10-55-11](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-11) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:c95a54025a64c21f0cb4add887e247955825e1e010e16a207ff215100da034a8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Convertible securities that permit or require the payment of cash by the holder of the security at conversion are considered the equivalent of warrants. In computing diluted EPS, the proceeds assumed to be received shall be assumed to be applied to purchase common stock under the treasury stock method and the convertible security shall be assumed to be converted under the [if-converted method](https://asc.understandingaccounting.org/glossary/i/#if-converted-method "A method of computing EPS data that assumes conversion of convertible securities at the beginning of the reporting period (or at time of issuance, if later)."). See Example 11 (paragraph [260-10-55-78](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-78)) for guidance on the effects of [contingently convertible instruments](https://asc.understandingaccounting.org/glossary/c/#contingently-convertible-instruments "Contingently convertible instruments are instruments that have embedded conversion features that are contingently convertible or exercisable based on either of the following: A market price trigger Multiple contingencies if one of the contingencies is a market price trigger and the instrument can be converted or share settled based on meeting the specified market condition. A market price trigger is a market condition that is based at least in part on the issuer's own share price. Examples of contingently convertible instruments include contingently convertible debt, contingently convertible preferred stock, and the instrument described by paragraph 260-10-45-43, all with embedded market price triggers.") on diluted EPS. ##### [260-10-55-12](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-12) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:3f1c88efabce7f3896ccd6d51a8792542a76e04a0fc0b5d89de1e420cb35eb6d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If the number of common shares outstanding increases as a result of a [stock dividend](https://asc.understandingaccounting.org/glossary/s/#stock-dividend "An issuance by a corporation of its own common shares to its common shareholders without consideration and under conditions indicating that such action is prompted mainly by a desire to give the recipient shareholders some ostensibly separate evidence of a part of their respective interests in accumulated corporate earnings without distribution of cash or other property that the board of directors deems necessary or desirable to retain in the business. A stock dividend takes nothing from the property of the corporation and adds nothing to the interests of the stockholders; that is, the corporation's property is not diminished and the interests of the stockholders are not increased. The proportional interest of each shareholder remains the same.") or stock split (see Subtopic 505-20) or decreases as a result of a reverse stock split, the computations of basic and diluted EPS shall be adjusted retroactively for all periods presented to reflect that change in capital structure. If changes in common stock resulting from stock dividends, stock splits, or reverse stock splits occur after the close of the period but before the financial statements are issued or are available to be issued (as discussed in Section 855-10-25), the per-share computations for those and any prior-period financial statements presented shall be based on the new number of shares. If per-share computations reflect such changes in the number of shares, that fact shall be disclosed. ##### [260-10-55-13](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-13) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:857f6ad12790ba77ead7bd7ce73cc87640324f98063e365dec9ae0d6335c21d7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A [rights issue](https://asc.understandingaccounting.org/glossary/r/#rights-issue "An offer to existing shareholders to purchase additional shares of common stock in accordance with an agreement for a specified amount (which is generally substantially less than the fair value of the shares) for a given period.") whose exercise price at issuance is less than the fair value of the stock contains a bonus element that is somewhat similar to a stock dividend. If a rights issue contains a bonus element and the rights issue is offered to all existing stockholders, basic and diluted EPS shall be adjusted retroactively for the bonus element for all periods presented. If the ability to exercise the rights issue is contingent on some event other than the passage of time, the provisions of this paragraph shall not be applicable until that contingency is resolved. ##### [260-10-55-14](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-14) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:434780fab264bb68ee9ca46f95ad9bd2b8248591a812948739990ac3cba32478 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The number of common shares used in computing basic and diluted EPS for all periods prior to the rights issue shall be the number of common shares outstanding immediately prior to the issue multiplied by the following factor: (fair value per share immediately prior to the exercise of the rights)/(theoretical ex-rights fair value per share). Theoretical ex-rights fair value per share shall be computed by adding the aggregate fair value of the shares immediately prior to the exercise of the rights to the proceeds expected from the exercise of the rights and dividing by the number of shares outstanding after the exercise of the rights. Example 5 (see paragraph [260-10-55-60](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-60)) illustrates that provision. If the rights themselves are to be publicly traded separately from the shares prior to the exercise date, fair value for the purposes of this computation shall be established at the close of the last day on which the shares are traded together with the rights. ##### [260-10-55-15](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-15) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:4bede06523cd9491a384e93fbf6e9ee75060d7667288b6264e9e9378945e2f76 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If authoritative literature requires that a restatement of the results of operations of a prior period be included in the income statement or summary of earnings, then EPS data given for the prior period or periods shall be restated. The effect of the restatement, expressed in per-share terms, shall be disclosed in the period of restatement. ##### [260-10-55-16](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-16) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:96a8ab3e0f1d568df862f1545b1d0580f2e08f86b0705b5b083848badbca8491 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Restated EPS data shall be computed as if the restated income or loss had been reported originally in the prior period or periods. Thus, it is possible that common stock assumed to be issued upon exercise, conversion, or issuance of potential common shares in accordance with the provisions of this Subtopic may not be included in the computation of restated EPS amounts. That is, retroactive restatement of income from continuing operations could cause potential common shares originally determined to be dilutive to become antidilutive pursuant to the control number provision in paragraph [260-10-45-18](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-18). The reverse also is true. Retroactive restatement also may cause the numerator of the EPS computation to change by an amount that differs from the amount of the retroactive adjustment. ##### [260-10-55-16A](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-16A) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:2f31ebfe0ead417ccbb3e39ac65a5c097363b50bb7288e260bba2df6c27b7106 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See paragraph [260-10-55-111](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-111) for guidance on the presentation of prior-period earnings per unit for entities within the scope of the Master Limited Partnerships Subsections that retrospectively adjust their financial statements and financial information for prior periods as a result of a [dropdown](https://asc.understandingaccounting.org/glossary/d/#dropdown "A transfer of certain net assets from a sponsor or general partner to a master limited partnership in exchange for consideration.") transaction accounted for under the Transactions Between Entities Under Common Control Subsections of Subtopic 805-50. ##### [260-10-55-17](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-17) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:39ec27e081ccdb34082935c9d20ce7d7389d3a547144214ff5d4980cfb18d23c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When common shares are issued to acquire a business in a business combination, the computations of EPS shall recognize the existence of the new shares only from the acquisition date. In reorganizations, EPS computations shall be based on analysis of the particular transaction and the provisions of this Subtopic. ##### [260-10-55-18](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-18) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:b634f6f985e5a7a4e94ba45bb229ffba5e88854f9d3a44473bf8246a963cf3ad Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [260-10-55-19](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-19) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:304f69dea82f67ce5bb2f5b07d11b2d6d4ef8a2a15895d2b03fb392cd8f625ae Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [260-10-55-20](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-20) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:f951f32ba08621683b6b474b45390545bc334ef2ef723b0c6608a461afe6958e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The effect on consolidated EPS of options, warrants, and convertible securities issued by a subsidiary depends on whether the securities issued by the subsidiary enable their holders to obtain common stock of the subsidiary or common stock of the parent entity. The following general guidelines shall be used for computing consolidated diluted EPS by entities with subsidiaries that have issued common stock or potential common shares to parties other than the parent entity 1. a Securities issued by a subsidiary that enable their holders to obtain the subsidiary's common stock shall be included in computing the subsidiary's EPS data. Those per-share earnings of the subsidiary shall then be included in the consolidated EPS computations based on the [consolidated group's](https://asc.understandingaccounting.org/glossary/c/#consolidated-group "A parent and all its subsidiaries.") holding of the subsidiary's securities. Example 7 (see paragraph [260-10-55-64](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-64)) illustrates that provision. 2. b Securities of a subsidiary that are convertible into its parent entity's common stock shall be considered among the potential common shares of the parent entity for the purpose of computing consolidated diluted EPS. Likewise, a subsidiary's options or warrants to purchase common stock of the parent entity shall be considered among the potential common shares of the parent entity in computing consolidated diluted EPS. Example 7 (see paragraph [260-10-55-64](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-64)) illustrates that provision. ##### [260-10-55-21](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-21) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:00a31958d9b95af6437beb7a4e0407762b20f8e28a25a6c72f4aea061a9d996c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The preceding provisions also apply to investments in common stock of corporate joint ventures and investee companies accounted for under the equity method. ##### [260-10-55-22](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-22) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:515a426ab2aaff6dacbd61c795f89d543f48af8e46aba566ac1096a919e319b0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The if-converted method shall be used in determining the EPS impact of securities issued by a parent entity that are convertible into common stock of a subsidiary or an investee entity accounted for under the equity method. That is, the securities shall be assumed to be converted and the numerator ([income available to common stockholders](https://asc.understandingaccounting.org/glossary/i/#income-available-to-common-stockholders "Income (or loss) from continuing operations or net income (or net loss) adjusted for preferred stock dividends.")) adjusted as necessary in accordance with the provisions in paragraph [260-10-45-40(a) through (b)](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-40). In addition to those adjustments, the numerator shall be adjusted appropriately for any change in the income recorded by the parent (such as dividend income or equity method income) due to the increase in the number of common shares of the subsidiary or equity method investee outstanding as a result of the assumed conversion. The denominator of the diluted EPS computation would not be affected because the number of shares of parent entity common stock outstanding would not change upon assumed conversion. ##### [260-10-55-23](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-23) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:ead1ed8e31b3b5cbdff2f7a8c0613b37fcf3c30ee8048a2ac6de771d183502b3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If an entity has common shares issued in a partially paid form (permitted in some countries) and those shares are entitled to dividends in proportion to the amount paid, the common-share equivalent of those partially paid shares shall be included in the computation of basic EPS to the extent that they were entitled to participate in dividends. Partially paid stock subscriptions that do not share in dividends until fully paid are considered the equivalent of warrants and shall be included in diluted EPS by use of the treasury stock method. That is, the unpaid balance shall be assumed to be proceeds used to purchase stock under the treasury stock method. The number of shares included in diluted EPS shall be the difference between the number of shares subscribed and the number of shares assumed to be purchased. ##### [260-10-55-23A](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-23A) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:bbce54454d7080276ee3cd6620c01cfd202ba0d04003695264d46f0f50c7e5be Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Paragraphs [260-10-55-24 through 55-31](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-24) provide additional guidance on the requirements in paragraph [260-10-45-65](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-65) related to the allocation of undistributed earnings to participating securities. ##### [260-10-55-24](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-24) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:62d0e406be20ecac0ff38d860d77d44652a85416498ff77cf65ce342e89628a2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In all of the following circumstances, the participation rights of the securities may be required to be disclosed in accordance with the provisions of Subtopic 505-10, regardless of whether undistributed earnings are allocated to the [participating security](https://asc.understandingaccounting.org/glossary/p/#participating-security "A security that may participate in undistributed earnings with common stock, whether that participation is conditioned upon the occurrence of a specified event or not. The form of such participation does not have to be a dividend—that is, any form of participation in undistributed earnings would constitute participation by that security, regardless of whether the payment to the security holder was referred to as a dividend."). ##### [260-10-55-25](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-25) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:78e644d9f36b3cb40f561afa06411e3f6b5aaae23692a4831b95e77ddd803665 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a participating security provides the holder with the ability to participate in all dividends declared with the holders of common stock on a one-to-one per-share basis, then the undistributed earnings should be allocated between the common stock and the participating security on a one-to-one per-share basis. ##### [260-10-55-26](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-26) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:3d5638db82ad6ee6aa3aa313496bc20d968bb9e2c0de6ea3616d4e1dcccea657 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a participating security provides the holder with the ability to participate with the holders of common stock in dividends declared contingent upon the occurrence of a specified event, the occurrence of which is subject to management discretion or is not objectively determinable (for example, liquidation of the entity or management determination of an extraordinary dividend), then the terms of the participating security do not specify objectively determinable, nondiscretionary participation rights; therefore, undistributed earnings would not be allocated to the participating security. ##### [260-10-55-27](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-27) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:247c13a0a43990a6c866f62f3d86bd48f5be6f5a352318d84260dd0518a2dea7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a participating security provides the holder with the ability to participate with the holders of common stock in earnings for a period in which a specified event occurs, regardless of whether a dividend is paid during the period (for example, achievement of a target market price of a security or achievement of a certain earnings level), then undistributed earnings would be allocated to common stock and the participating security based on the assumption that all of the earnings for the period are distributed. Undistributed earnings would be allocated to the participating security if the contingent condition would have been satisfied at the reporting date, irrespective of whether an actual distribution was made for the period. ##### [260-10-55-28](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-28) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:0645fd1341a520f65cdcd7d6fe27599e0a30c6cbc53ba547de1b18f79d36eb09 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a participating security provides the holder with the ability to participate in extraordinary dividends and the classification of dividends as extraordinary is predetermined by a formula, for example, any dividend per common share in excess of 5 percent of the current market price of the stock is defined as extraordinary, then undistributed earnings would be allocated to common stock and the participating security based on the assumption that all of the earnings for the period are distributed. If earnings for a given period exceed the specified threshold above which the participating security would participate (that is, earnings for the period are in excess of 5 percent of the current market price of the stock), undistributed earnings would be allocated to the participating security according to its terms. ##### [260-10-55-29](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-29) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:579927cac2a09f82c5660b698dfcd70aef8cf9b4c9722c985f48ce38a47c0828 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a participating security provides the holder with the ability to participate in extraordinary dividends and the classification of dividends as extraordinary is within the sole discretion of the board of directors, then undistributed earnings would be allocated only to common stock. Since the classification of dividends as extraordinary is within the sole discretion of the board of directors, undistributed earnings would not be allocated to the participating security as the participation in the undistributed earnings would not be objectively determinable. ##### [260-10-55-30](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-30) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:7e8929502e6b47dea61d6c3fff4d59d0e6a5dfde298a0d7c74d08ffdeb1f3d4a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a participating security provides the holder with the ability to participate in all dividends up to a specified threshold (for example, the security participates in dividends per common share up to 5 percent of the current market price of the stock), then undistributed earnings would be allocated to common stock and the participating security based on the assumption that all of the earnings for the period are distributed. In this example, undistributed earnings would be allocated to common stock and to the participating security up to 5 percent of the current market price of the common stock, as the amount of the threshold for participation by the participating security is objectively determinable. The remaining undistributed earnings for the period would be allocated to common stock. ##### [260-10-55-31](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-31) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:f3f1998fe0316f6b8211c4e0aff16690010c0342030738cd586f9f3d1392f848 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. See Example 9 (paragraph [260-10-55-71](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-71)) for an illustration of this guidance. ##### [260-10-55-32](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-32) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:1be1b998adab3ec60937dfb5df297cd4d3a256b0677588e47f8d54409d1141c0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Adjustments shall be made to the numerator for contracts that are asset or liability classified, in accordance with Section 815-40-25, but for which the potential common shares are included in the denominator in accordance with the guidance in paragraph [260-10-45-45](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-45). For purposes of computing diluted EPS, the adjustments to the numerator are only permitted for instruments for which the effect on net income (the numerator) is different depending on whether the instrument is accounted for as an equity instrument or as an asset or liability (for example, those that are within the scope of Subtopics 480-10 and 815-40). ##### [260-10-55-33](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-33) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:65252d3e5f2dfb241317e89fa93770bece0dfecb42b19e5b0baa4a3697f7dce9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The references in paragraphs [260-10-45-30](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-30) and [260-10-45-45](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-45) for share-based payment arrangements that are payable in common stock or in cash at the election of either the entity or the grantee refer to using the guidance in paragraph [260-10-45-45A](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-45A)for purposes of determining whether shares issuable in accordance with such plans are included in the denominator for purposes of computing diluted EPS amounts. Accordingly, the numerator is not adjusted in those circumstances. Paragraph [260-10-55-36A](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-36A) illustrates these requirements. ##### [260-10-55-34](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-34) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:bc380e0fabf99938af21b3e620f1531a80d9456d753e8b54af779de7c9c51719 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Year-to-date diluted EPS calculations may require an adjustment to the numerator in certain circumstances. For example, for contracts that are share settled for EPS purposes, the numerator adjustment is equal to the earnings effect of the change in the fair value of the asset or liability recorded pursuant to Section 815-40-35 during the year-to-date period. In that example, the number of incremental shares included in the denominator should be determined in accordance with the guidance in paragraph [260-10-55-3](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-3). ##### [260-10-55-35](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-35) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:c441c2d95c7843e721d107fe531b30356b5a60d10aee3d230869c8769c538f14 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [260-10-55-36](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-36) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:5209abd18e77373649bcf51662f3e02440b22068d82e8c0a1a2a14cc7225f03b Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2020-06](https://asc.understandingaccounting.org/updates/asu-2020-06/). ##### [260-10-55-36A](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-36A) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:06f5e52415d82d1701c4c67b2d60220156042e60febcf98951566f4c3fa231bb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates the guidance in paragraphs [260-10-45-45 through 45-46](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-45) and [260-10-55-32 through 55-34](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-32) for the effects of contracts that may be settled in stock or cash on the computation of diluted EPS. - ![](https://asc.understandingaccounting.org/asc-img/GUID-9A465E62-1F6A-4210-B7B7-CD4F11B7AE1B-low.gif) Assumed Settlement for EPS Purposes (a) Accounting for Book Purposes (per Topic 480 or 815) Adjustment Required to Book Earnings (Numerator) for Purposes of Computing Diluted Earnings per Share? (b) Adjustment Required to Number of Shares Included in Denominator? (b) Shares Asset/Liability Yes (per paragraph 260-10-45-45) Yes Shares Equity No Yes Cash Asset/Liability No No (a) "Note that for purposes of computing EPS, delivery of the full stated amount of cash in exchange for delivery of the full stated number of shares (physical settlement) should be considered share settlement." (b) Except for forward purchase contracts that require physical settlement by repurchase of a fixed number of shares in exchange for cash. Topic 480 provides EPS guidance for those contracts. #### Illustrations ##### [260-10-55-37](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-37) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:9beee8617992b4dc4172d802e0e9f084c7c42684e0889d987642daac08ac2335 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Examples illustrate this Subtopic's application to entities with complex capital structures. Certain assumptions have been made to simplify the computations and focus on the issue at hand in each Example. ##### [260-10-55-38](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-38) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:de875397e6a1b4f76420d546932b00bfdb82a44ecb5cd2c30aa001a46b150d83 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the quarterly and annual computations of basic and diluted EPS in the year 20X1 for Entity A, which has a complex capital structure. The control number used in this Example (and in Example 2) is income from continuing operations. Paragraph [260-10-55-49](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-49) illustrates the presentation of basic and diluted EPS on the face of the income statement. The facts assumed are as follows: 1. a Average market price of common stock. The average market prices of common stock for the calendar-year 20X1 were as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-DCCE58FC-F2E2-40D6-82DC-FF70FDC060FD-low.gif) First quarter $59 Second quarter $70 Third quarter $72 Fourth quarter $72 2. b The average market price of common stock from July 1 to September 1, 20X1 was $71. 3. c Common stock. The number of shares of common stock outstanding at the beginning of 20X1 was 3,300,000. On March 1, 20X1, 100,000 shares of common stock were issued for cash. 4. d Convertible debentures. In the last quarter of 20X0, 4 percent convertible debentures with a principal amount of $10,000,000 due in 20 years were sold for cash at $1,000 (par). Interest is payable semiannually on November 1 and May 1. Each $1,000 debenture is convertible into 20 shares of common stock. No debentures were converted in 20X0. The entire issue was converted on April 1, 20X1, because the issue was called by Entity A. 5. e Convertible preferred stock. In the second quarter of 20X0, 600,000 shares of convertible preferred stock were issued for assets in a purchase transaction. The quarterly dividend on each share of that convertible preferred stock is $0.05, payable at the end of the quarter. Each share is convertible into one share of common stock. Holders of 500,000 shares of that convertible preferred stock converted their preferred stock into common stock on June 1, 20X1. 6. f Warrants. Warrants to buy 500,000 shares of common stock at $60 per share for a period of 5 years were issued on January 1, 20X1. All outstanding warrants were exercised on September 1, 20X1. 7. g Options. Options to buy 1,000,000 shares of common stock at $85 per share for a period of 10 years were issued on July 1, 20X1. No options were exercised during 20X1 because the exercise price of the options exceeded the market price of the common stock. 8. h Tax rate. The tax rate was 40 percent for 20X1. ##### [260-10-55-39](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-39) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:62fd6eed128fdc931eced6f58faad1982cbd8c7995c63f6793a36d357306c5f5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates the income (loss) from continuing operations. - ![](https://asc.understandingaccounting.org/asc-img/GUID-52961918-A592-43D3-BC56-A9C95A3425AC-low.gif) Year 20X1 Income (Loss) from Continuing Operations(a) Net Income (Loss) First quarter " $3,000,000 " " $3,000,000 " Second quarter " 4,500,000 " " 4,500,000 " Third quarter " 500,000 " " (1,500,000)" (b) Fourth quarter " (500,000)" " (500,000)" Full year " $7,500,000 " " $5,500,000 " (a) This is the control number (before adjusting for preferred dividends). See paragraph 260-10-45-18. (b) Entity A had a $2 million loss on discontinued operations (net of tax) in the third quarter. ##### [260-10-55-40](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-40) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:a6326c202cc89f5427a4c9376bb5ab905c9f022c9bc5f7f1f782824030f59df1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following tables illustrate calculation of basic EPS for the first quarter. - ![](https://asc.understandingaccounting.org/asc-img/GUID-4C03FE05-CB42-48EF-B783-10E1FE400DFA-low.gif) First Quarter 20X1 Basic EPS Computation Net income " $3,000,000 " Less: Preferred stock dividends " (30,000)" (a) Income available to common stockholders " $2,970,000 " Dates Outstanding Shares Outstanding Fraction of Period Weighted-Average Shares January 1-February 28 "3,300,000" ⅔ "2,200,000" Issuance of common stock on March 1 "100,000" March 1-March 31 "3,400,000" ⅓ "1,133,333" Weighted-average shares "3,333,333" Basic EPS $0.89 The equation for computing basic EPS is: Income available to common stockholders Weighted-average shares (a) "600,000 shares × $0.05" ##### [260-10-55-41](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-41) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:a132a7d18f58cd389dc3dd2a10a436380b7302085bb6dd26431578e9081bad32 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates calculation of diluted EPS for the first quarter. - ![](https://asc.understandingaccounting.org/asc-img/GUID-0D0D8554-0097-4208-AE33-7599AC36CC27-low.gif) First Quarter 20X1 Diluted EPS Computation Income available to common stockholders " $2,970,000 " Plus: Income impact of assumed conversions Preferred stock dividends " $30,000 " (a) Interest on 4% convertible debentures " 60,000 " (b) Effect of assumed conversions " 90,000 " Income available to common stockholders + assumed conversions " $3,060,000 " Weighted-average shares "3,333,333 " Plus: Incremental shares from assumed conversions Warrants - (c) Convertible preferred stock "600,000 " 4% convertible debentures "200,000 " Dilutive potential common shares "800,000 " Adjusted weighted-average shares "4,133,333 " Diluted EPS $0.74 The equation for computing diluted EPS is: Income available to common stockholders + Effect of assumed conversions Weighted-average shares + Dilutive potential common shares (a) "600,000 shares × $0.05" (b) "($10,000,000 × 4%) ÷ 4; less taxes at 40%" (c) The warrants were not assumed exercised because they were antidilutive in the period ($60 exercise price > $59 average price). ##### [260-10-55-42](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-42) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:428d7e55e5a8d50034dd1c9b4106c48ef21f6bb92eb87796783dc670c3293b7e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following tables illustrate calculation of basic EPS for the second quarter. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A95259A9-DC28-4DC6-A723-58389DE9CF80-low.gif) Second Quarter 20X1 Basic EPS Computation Net income " $4,500,000 " Less: Preferred stock dividends " (5,000)" (a) Income available to common stockholders " $4,495,000 " Dates Outstanding Shares Outstanding Fraction of Period Weighted-Average Shares April 1 "3,400,000 " Conversion of 4% debentures on April 1 "200,000 " April 1-May 31 "3,600,000 " ⅔ "2,400,000" Conversion of preferred stock on June 1 "500,000 " June 1-June 30 "4,100,000 " ⅓ "1,366,667" Weighted-average shares "3,766,667" Basic EPS $1.19 The equation for computing basic EPS is: Income available to common stockholders Weighted-average shares (a) "100,000 shares × $0.05" ##### [260-10-55-43](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-43) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:9b76f7a4a98d0a8dece28120df29506c353e4d10d2d7282bb71f9661ccc1033f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates calculation of diluted EPS for the second quarter. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A68CDCBF-4465-4394-B294-AF688C0AFA75-low.gif) Second Quarter 20X1 Diluted EPS Computation Income available to common stockholders " $4,495,000 " Plus: Income impact of assumed conversions Preferred stock dividends " $5,000 " (a) Effect of assumed conversions " 5,000 " Income available to common stockholders + assumed conversions " $4,500,000 " Weighted-average shares " 3,766,667 " Plus: Incremental shares from assumed conversions Warrants " 71,429 " (b) Convertible preferred stock " 433,333 " (c) Dilutive potential common shares " 504,762 " Adjusted weighted-average shares " 4,271,429 " Diluted EPS $1.05 The equation for computing diluted EPS is: Income available to common stockholders + Effect of assumed conversions Weighted-average shares + Dilutive potential common shares (a) "100,000 shares × $0.05" (b) "$60 × 500,000 = $30,000,000; $30,000,000 ÷ $70 = 428,571; 500,000 - 428,571 = 71,429 shares OR \[($70 - $60) ÷ $70\] × 500,000 shares = 71,429 shares" (c) "(600,000 shares × 2/3) + (100,000 shares × 1/3)" ##### [260-10-55-44](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-44) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:3f97b3503e866ee620bd189fc818b2080744d0a03db9eff96dbce46955c2e877 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following tables illustrate calculation of basic EPS for the third quarter. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A5165F8D-240C-461E-BC99-0A69249E7896-low.gif) Third Quarter 20X1 Basic EPS Computation Income from continuing operations " $500,000 " Less: Preferred stock dividends " (5,000)" Income available to common stockholders " 495,000 " Loss on discontinued operations " (2,000,000)" Net loss available to common stockholders " $(1,505,000)" Dates Outstanding Shares Outstanding Fraction of Period Weighted- Average Shares July 1-August 31 "4,100,000 " ⅔ "2,733,333 " Exercise of warrants on September 1 "500,000 " September 1-September 30 "4,600,000 " ⅓ "1,533,333 " Weighted-average shares "4,266,666 " Basic EPS Income from continuing operations $0.12 Loss on discontinued operations $(0.47) Net loss $(0.35) The equation for computing basic EPS is: Income available to common stockholders Weighted-average shares ##### [260-10-55-45](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-45) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:1bcdc49351ded7df2b045dd203bddb8b814841b154984543bd61f227fa0f0062 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following tables illustrate calculation of diluted EPS for the third quarter. - ![](https://asc.understandingaccounting.org/asc-img/GUID-04DBF299-86EF-4EEA-9A81-9E6CE57FEDDA-low.gif) Third Quarter 20X1 Diluted EPS Computation Income available to common stockholders " $495,000 " Plus: Income impact of assumed conversions Preferred stock dividends " $5,000 " Effect of assumed conversions " 5,000 " Income available to common stockholders + assumed conversions " 500,000 " Loss on discontinued operations " (2,000,000)" Net loss available to common stockholders + assumed conversions " $(1,500,000)" Weighted-average shares " 4,266,666 " Plus: Incremental shares from assumed conversions Warrants " 51,643 " (a) Convertible preferred stock " 100,000 " Dilutive potential common shares " 151,643 " Adjusted weighted-average shares " 4,418,309 " Diluted EPS Income from continuing operations $0.11 Loss on discontinued operations $(0.45) Net loss $(0.34) The equation for computing diluted EPS is: Income available to common stockholders + Effect of assumed conversions Weighted-average shares + Dilutive potential common shares (a) "\[($71 - $60) ÷ $71\] × 500,000 = 77,465 shares; 77,465 × 2/3 = 51,643 shares" - Note that the incremental shares from assumed conversions are included in computing the diluted per-share amounts for the discontinued operation and net loss even though they are antidilutive. This is because the control number (income from continuing operations, adjusted for preferred dividends) was income, not a loss. (See paragraphs [260-10-45-18 through 45-19](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-18) .) Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [260-10-65-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-65-5)The following tables illustrate calculation of diluted EPS for the third quarter. - ![](https://asc.understandingaccounting.org/asc-img/GUID-04DBF299-86EF-4EEA-9A81-9E6CE57FEDDA-low.gif) Third Quarter 20X1 Diluted EPS Computation Income available to common stockholders " $495,000 " Plus: Income impact of assumed conversions Preferred stock dividends " $5,000 " Effect of assumed conversions " 5,000 " Income available to common stockholders + assumed conversions " 500,000 " Loss on discontinued operations " (2,000,000)" Net loss available to common stockholders + assumed conversions " $(1,500,000)" Weighted-average shares " 4,266,666 " Plus: Incremental shares from assumed conversions Warrants " 51,643 " (a) Convertible preferred stock " 100,000 " Dilutive potential common shares " 151,643 " Adjusted weighted-average shares " 4,418,309 " Diluted EPS Income from continuing operations $0.11 Loss on discontinued operations $(0.45) Net loss $(0.34) The equation for computing diluted EPS is: Income available to common stockholders + Effect of assumed conversions Weighted-average shares + Dilutive potential common shares (a) "\[($71 - $60) ÷ $71\] × 500,000 = 77,465 shares; 77,465 × 2/3 = 51,643 shares" - Note that the incremental shares from assumed conversions are included in computing the diluted per-share amounts for the discontinued operation and net loss even though they are antidilutive. This is because the incremental shares are dilutive to the control number (income from continuing operations, adjusted for preferred dividends). (See paragraphs [260-10-45-18 through 45-20](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-18) .) ##### [260-10-55-46](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-46) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:036785a69fe99cf46f72063b1866703c1e535207c88a5670861bbeadf726de17 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following tables illustrate calculation of basic and diluted EPS for the fourth quarter. - ![](https://asc.understandingaccounting.org/asc-img/GUID-BACD495E-2A71-45B8-8073-44BF4EBDE531-low.gif) Fourth Quarter 20X1 Basic and Diluted EPS Computation Net loss " $(500,000)" Plus: Preferred stock dividends " (5,000)" Net loss available to common stockholders " $(505,000)" Dates Outstanding Shares Outstanding Fraction of Period Weighted- Average Shares October 1-December 31 " 4,600,000 " 3/3 " 4,600,000 " Weighted-average shares " 4,600,000 " Basic and Diluted EPS Net loss $(0.11) The equation for computing basic (and diluted) EPS is: Income available to common stockholders Weighted-average shares - Note that the incremental shares from assumed conversions are not included in computing the diluted per-share amounts for net loss because the control number (net loss adjusted for preferred dividends) was a loss, not income. (See paragraphs [260-10-45-18 through 45-19](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-18) .) Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [260-10-65-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-65-5)The following tables illustrate calculation of basic and diluted EPS for the fourth quarter. - ![](https://asc.understandingaccounting.org/asc-img/GUID-BACD495E-2A71-45B8-8073-44BF4EBDE531-low.gif) Fourth Quarter 20X1 Basic and Diluted EPS Computation Net loss " $(500,000)" Plus: Preferred stock dividends " (5,000)" Net loss available to common stockholders " $(505,000)" Dates Outstanding Shares Outstanding Fraction of Period Weighted- Average Shares October 1-December 31 " 4,600,000 " 3/3 " 4,600,000 " Weighted-average shares " 4,600,000 " Basic and Diluted EPS Net loss $(0.11) The equation for computing basic (and diluted) EPS is: Income available to common stockholders Weighted-average shares - Note that the incremental shares from assumed conversions are not included in computing the diluted per-share amounts for net loss because the effect of including those incremental shares would be antidilutive to the control number (net loss adjusted for preferred dividends). (See paragraphs [260-10-45-18 through 45-20](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-18) .) ##### [260-10-55-47](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-47) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:00534ff3678e825c3a57e04a82abddfec8b17df328aa1afb76c4387b2fddba12 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following tables illustrate calculation of basic EPS for the full year 20X1. - ![](https://asc.understandingaccounting.org/asc-img/GUID-B1B3F837-7444-4B0C-A55E-C5D1F1717F73-low.gif) Full Year 20X1 Basic EPS Computation Income from continuing operations " $7,500,000 " Less: Preferred stock dividends " (45,000)" Income available to common stockholders " 7,455,000 " Loss on discontinued operations " (2,000,000)" Net income available to common stockholders " $5,455,000 " Dates Outstanding Shares Outstanding Fraction of Period Weighted-Average Shares January 1-February 28 " 3,300,000 " 2/12 " 550,000 " Issuance of common stock on March 1 " 100,000 " March 1-March 31 " 3,400,000 " 1/12 " 283,333 " Conversion of 4% debenture on April 1 " 200,000 " April 1-May 31 " 3,600,000 " 2/12 " 600,000 " Conversion of preferred stock on June 1 " 500,000 " June 1-August 31 " 4,100,000 " 3/12 " 1,025,000 " Exercise of warrants on September 1 " 500,000 " September 1-December 31 " 4,600,000 " 4/12 " 1,533,333 " Weighted-average shares " 3,991,666 " Basic EPS Income from continuing operations $1.87 Loss on discontinued operations $(0.50) Net income $1.37 The equation for computing basic EPS is: Income available to common stockholders Weighted-average shares ##### [260-10-55-48](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-48) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:91a96a63e872f85764fff36dc880586cb6c0b5b987525a1eff88b44ce7ae0539 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following tables illustrate calculation of diluted EPS for the full year 20X1. - ![](https://asc.understandingaccounting.org/asc-img/GUID-C1EAB909-9EA4-4CC3-8D13-AEC4ABCB40E7-low.gif) Full Year 20X1 Diluted EPS Computation Income available to common stockholders " $7,455,000 " Plus: Income impact of assumed conversions Preferred stock dividends " $45,000 " Interest on 4% convertible debentures " 60,000 " Effect of assumed conversions " 105,000 " Income available to common stockholders + assumed conversions " 7,560,000 " Loss on discontinued operation " (2,000,000)" Net income available to common stockholders + assumed conversions " $5,560,000 " Weighted-average shares " 3,991,666 " Plus: Incremental shares from assumed conversions Warrants " 30,768 " (a) Convertible preferred stock " 308,333 " (b) 4% convertible debentures " 50,000 " (c) Dilutive potential commons shares " 389,101 " Adjusted weighted-average shares " 4,380,767 " Diluted EPS Income from continuing operation $1.73 Loss on discontinued operation $(0.46) Net income $1.27 The equation for computing diluted EPS is: Income available to common stockholders + Effect of assumed conversions Weighted-average shares + Dilutive potential common shares (a) "(71,429 shares × 3/12) + (51,643 shares × 3/12)" (b) "(600,000 shares × 5/12) + (100,000 shares × 7/12)" (c) "200,000 shares × 3/12" ##### [260-10-55-49](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-49) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:f680bed39acc951f7f5685ef42963635955176a3968bdb27b84ccc289248d3ef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates how Entity A might present its EPS data on its income statement. Note that the per-share amount for the discontinued operation is not required to be shown on the face of the income statement. - ![](https://asc.understandingaccounting.org/asc-img/GUID-2CD33DC1-3823-4CD3-B974-75FD277ED481-low.gif) For the Year Ended 20X1 Earnings per common share Income from continuing operation $1.87 Loss on discontinued operations (0.50) Net income $1.37 Earnings per common share—assuming dilution Income from continuing operation $1.73 Loss on discontinued operations (0.46) Net income $1.27 ##### [260-10-55-50](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-50) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:7a4c41aac7abe7815e77b84e5c01f3823bd001c3911825304d55f6ea8c6478f1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table includes the quarterly and annual EPS data for Entity A. The purpose of this table is to illustrate that the sum of the four quarters' EPS data will not necessarily equal the annual EPS data. This Subtopic does not require disclosure of this information. - ![](https://asc.understandingaccounting.org/asc-img/GUID-6DFF97D7-1A33-4BA2-B33E-BBC09C355045-low.gif) First Quarter Second Quarter Third Quarter Fourth Quarter Full Year Basic EPS Income (loss) from continuing operations $0.89 $1.19 $0.12 $(0.11) $1.87 Loss on discontinued operations - - (0.47) - (0.50) Net income (loss) $0.89 $1.19 $(0.35) $(0.11) $1.37 Diluted EPS Income (loss) from continuing operations $0.74 $1.05 $0.11 $(0.11) $1.73 Loss on discontinued operations - - (0.45) - (0.46) Net income (loss) $0.74 $1.05 $(0.34) $(0.11) $1.27 ##### [260-10-55-51](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-51) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:0ac2d6887e1224066f226552d484446e7b4aa3b2cba053cc6f7d7a187d70d321 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the reconciliation of the numerators and denominators of the basic and diluted EPS computations for income from continuing operations and other related disclosures required by paragraph [260-10-50-1](https://asc.understandingaccounting.org/asc/260/10/#260-10-50-1) for Entity A in Example 1. Note that Topic 718 has specific disclosure requirements related to share-based compensation arrangements. Transition date:(P) June 30, 2027; (N) June 30, 2027Transition guidance: [105-10-65-7](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-7)
Editor's Note: The pending content for paragraph 260-10-55-51 linked to paragraph 105-10-65-7 will be removed upon transition of paragraph 270-10-65-1.
This Example illustrates the reconciliation of the numerators and denominators of the basic and diluted EPS computations for income from continuing operations and other related disclosures required by paragraph [260-10-50-1](https://asc.understandingaccounting.org/asc/260/10/#260-10-50-1) for Entity A in Example 1. This disclosure is required in both interim and annual periods. Note that Topic 718 has specific disclosure requirements related to share-based compensation arrangements. Transition date:(P) December 16, 2027; (N) December 16, 2028Transition guidance: [270-10-65-1](https://asc.understandingaccounting.org/asc/270/10/#270-10-65-1)This Example illustrates the reconciliation of the numerators and denominators of the basic and diluted EPS computations for income from continuing operations and other related disclosures required by paragraph [260-10-50-1](https://asc.understandingaccounting.org/asc/260/10/#260-10-50-1) for Entity A in Example 1. This disclosure is required in both interim and annual periods. Note that Topic 718 has specific disclosure requirements related to share-based compensation arrangements. ##### [260-10-55-52](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-52) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:99391ec7c8cd587679bcd6209d6e5e70b2787b685c17cefd87cbcda91bd20707 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates the computation of basic and diluted EPS for the year ended 20X1. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A2606ADE-3CAD-4096-A6F9-A75C13FBC13A-low.gif) For the Year Ended 20X1 Income (Numerator) Shares (Denominator) Per-Share Amount Income from continuing operations " $7,500,000 " Less: Preferred stock dividends " (45,000)" Basic EPS Income available to common stockholders " 7,455,000 " "3,991,666" $1.87 Effect of Dilutive Securities Warrants "30,768" Convertible preferred stock " 45,000 " "308,333" 4% convertible debentures " 60,000 " "50,000" Diluted EPS Income available to common stockholders + assumed conversions " $7,560,000 " "4,380,767" $1.73 - Options to purchase 1,000,000 shares of common stock at $85 per share were outstanding during the second half of 20X1 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. The options, which expire on June 30, 20Y1, were still outstanding at the end of year 20X1. Transition date:(P) June 30, 2027; (N) June 30, 2027Transition guidance: [105-10-65-7](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-7)The following table illustrates the computation of basic and diluted EPS for the year ended 20X1. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A2606ADE-3CAD-4096-A6F9-A75C13FBC13A-low.gif) For the Year Ended 20X1 Income (Numerator) Shares (Denominator) Per-Share Amount Income from continuing operations " $7,500,000 " Less: Preferred stock dividends " (45,000)" Basic EPS Income available to common stockholders " 7,455,000 " "3,991,666" $1.87 Effect of Dilutive Securities Warrants "30,768" Convertible preferred stock " 45,000 " "308,333" 4% convertible debentures " 60,000 " "50,000" Diluted EPS Income available to common stockholders + assumed conversions " $7,560,000 " "4,380,767" $1.73 Diluted EPS was computed using the treasury stock method for warrants and the if-converted method for convertible instruments. Options to purchase 1,000,000 shares of common stock at $85 per share were outstanding during the second half of 20X1 but were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. The options, which expire on June 30, 20Y1, were still outstanding at the end of year 20X1. ##### [260-10-55-53](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-53) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:c081e6076b98af53c6a6b0d7e8e44fbf92b0b1b1b614bfe2dd9a875439a94a24 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the contingent share provisions described in paragraphs [260-10-45-13](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-13) and [260-10-45-48 through 45-57](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-48) . This Example has the following assumptions: 1. a Entity A had 100,000 shares of common stock outstanding during the entire year ended December 31, 20X1. It had no options, warrants, or convertible securities outstanding during the period. 2. b Terms of a [contingent stock agreement](https://asc.understandingaccounting.org/glossary/c/#contingent-stock-agreement "An agreement to issue common stock (usually in connection with a business combination) that is dependent on the satisfaction of certain conditions. See Contingently Issuable Shares.") related to a recent business combination provided the following to certain shareholders of Entity A: 1. 1 1,000 additional common shares for each new retail site opened during 20X1 2. 2 5 additional common shares for each $100 of consolidated, after-tax net income in excess of $500,000 for the year ended December 31, 20X1. 3. c Entity A opened two new retail sites during the year: 1. 1 One on May 1, 20X1 2. 2 One on September 1, 20X1. 4. d Entity A's consolidated, year-to-date after-tax net income was: 1. 1 $400,000 as of March 31, 20X1 2. 2 $600,000 as of June 30, 20X1 3. 3 $450,000 as of September 30, 20X1 4. 4 $700,000 as of December 31, 20X1. ##### [260-10-55-54](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-54) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:a832b52f50df80b909ca20b42f4d0392b78d5e3fb3742fa1fcf18c185afba4f5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Note that in computing diluted EPS for an interim period, contingent shares are included as of the beginning of the period. For year-to-date computations, paragraph [260-10-45-49](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-49) requires that contingent shares be included on a weighted-average basis. ##### [260-10-55-55](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-55) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:955ae00590f9556deaa774fe0504b00ee12e1307c7349e823968a72711a2dfd7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates the quarterly and annual calculation of basic and diluted EPS. ##### [260-10-55-56](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-56) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:c96e567cf9c69c1bc52b4332ebaa28086acd3c856653c08a18ce62bd196f2a22 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ![](https://asc.understandingaccounting.org/asc-img/GUID-E40EE11A-5DE6-4833-A9C7-457D4D33B5B2-low.gif) First Quarter Second Quarter Third Quarter Fourth Quarter Full Year Basic EPS Computation Numerator " $400,000 " " $200,000 " " $(150,000)" " $250,000 " " $700,000 " Denominator: Common shares outstanding "100,000 " "100,000 " "100,000 " "100,000 " "100,000 " Retail site contingency 0 667 (a) "1,333 " (b) "2,000 " "1,000 " (c) Earnings contingency (d) 0 0 0 0 0 Total shares "100,000 " "100,667 " "101,333 " "102,000 " "101,000 " Basic EPS $4.00 $1.99 $(1.48) $2.45 $6.93 First Quarter Second Quarter Third Quarter Fourth Quarter Full Year Diluted EPS Computation Numerator " $400,000 " " $200,000 " " $(150,000)" " $250,000 " " $700,000 " Denominator: Common shares outstanding "100,000 " "100,000 " "100,000 " "100,000 " "100,000 " Retail site contingency 0 "1,000 " "2,000 " "2,000 " "1,250 " (e) Earnings contingency 0 (f) "5,000 " (g) 0 (h) "10,000 " (i) "3,750 " (j) Total shares "100,000 " "106,000 " "102,000 " "112,000 " "105,000 " Diluted EPS $4.00 $1.89 $(1.47) (k) $2.23 $6.67 (a) "1,000 shares × ⅔" (b) "1,000 shares + (1,000 shares × ⅓)" (c) "(1,000 shares × 8/12) + (1,000 shares × 4/12)" (d) The earnings contingency has no effect on basic EPS because it is not certain that the condition is satisfied until the end of the contingency period (see paragraphs 260-10-45-50 through 45-57). The effect is negligible for the fourth-quarter and full-year computations because it is not certain that the condition is met until the last day of the period. (e) "(0 + 1,000 + 2,000 + 2,000) ÷ 4" (f) "Entity A did not have $500,000 year-to-date, after-tax net income at March 31, 20X1. Projecting future earnings levels and including the related contingent shares are not permitted by this Subtopic." (g) "\[($600,000 - $500,000) ÷ $100\] × 5 shares" (h) "Year-to-date, after-tax net income was less than $500,000." (i) "\[($700,000 - $500,000) ÷ $100\] × 5 shares" (j) "(0 + 5,000 + 0 + 10,000) ÷ 4" (k) "Loss during the third quarter is due to an extraordinary item; therefore, antidilution rules (see paragraph 260-10-45-17) do not apply." ##### [260-10-55-57](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-57) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:39f7566eda2b27b4f1e977a27b63daa683232ee274fda0121091d230dbc60aa1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the [antidilution](https://asc.understandingaccounting.org/glossary/a/#antidilution "An increase in earnings per share amounts or a decrease in loss per share amounts.") sequencing provisions described in paragraph [260-10-45-18](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-18) for Entity A for the year ended December 31, 20X0. This Example has the following assumptions: 1. a Entity A had income available to common stockholders of $10,000,000 for the year 20X0. 2. b 2,000,000 shares of common stock were outstanding for the entire year 20X0. 3. c The average market price of the common stock was $75. 4. d Entity A had the following potential common shares outstanding during the year: 1. 1 Options (not compensation- related) to buy 100,000 shares of common stock at $60 per share. 2. 2 800,000 shares of convertible preferred stock entitled to a cumulative dividend of $8 per share. Each preferred share is convertible into two shares of common stock. 3. 3 5 percent convertible debentures with a principal amount of $100,000,000 (issued at par). Each $1,000 debenture is convertible into 20 shares of common stock. 5. e The tax rate was 40 percent for 20X0. ##### [260-10-55-58](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-58) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:46eb5433c344465505eab05ccabb2cd55a09db0f32627171428794645f6a1c33 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates calculation of earnings per incremental share. - ![](https://asc.understandingaccounting.org/asc-img/GUID-64F4DB78-FD84-4B47-948B-9E81C3B716BC-low.gif) Determination of Earnings per Incremental Share Increase in Income Increase in Number of Common Shares Earnings per Incremental Share Options - "20,000 " (a) - Convertible preferred stock " $6,400,000 " (b) "1,600,000 " (c) $4.00 5% convertible debentures " 3,000,000 " (d) "2,000,000 " (e) 1.50 (a) "\[($75 - $60) ÷ $75\] × 100,000" (b) "800,000 shares × $8" (c) "800,000 shares × 2" (d) "($100,000,000 × 5%) less taxes at 40%" (e) "100,000 debentures × 20" ##### [260-10-55-59](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-59) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:26dc9eb25f27f19a7ccedbb1ef87682ce88591bbd375d28534b1917e8b72208f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates calculation of diluted EPS. - ![](https://asc.understandingaccounting.org/asc-img/GUID-2E35C34E-DC7F-42A2-BF8C-BDA54FD7CF91-low.gif) Computation of Diluted Earnings per Share Income Available Common Shares Per Share As reported " $10,000,000 " " 2,000,000 " $5.00 Options - " 20,000 " " 10,000,000 " " 2,020,000 " 4.95 Dilutive 5% convertible debentures " 3,000,000 " " 2,000,000 " " 13,000,000 " " 4,020,000 " 3.23 Dilutive Convertible preferred stock " 6,400,000 " " 1,600,000 " " $19,400,000 " " 5,620,000 " 3.45 Antidilutive - Note that because diluted EPS increases from $3.23 to $3.45 when convertible preferred shares are included in the computation, those convertible preferred shares are antidilutive and are ignored in the computation of diluted EPS. Therefore, diluted EPS is reported as $3.23. ##### [260-10-55-60](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-60) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:84107967da029bfc767ddba0856c8e2b067aa8f15c9da7cc612d40f82515568d Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the provisions for stock rights issues that contain a bonus element as described in paragraphs [260-10-55-13 through 55-14](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-13) . This Example has the following assumptions: 1. a Net income was $1,100 for the year ended December 31, 20X0. 2. b 500 common shares were outstanding for the entire year ended December 31, 20X0. 3. c A rights issue was offered to all existing shareholders in January 20X1. The last date to exercise the rights was March 1, 20X1. The offer provided 1 common share for each 5 outstanding common shares (100 new shares). 4. d The exercise price for the rights issue was $5 per share acquired. 5. e The fair value of 1 common share was $11 at March 1, 20X1. 6. f Basic EPS for the year 20X0 (prior to the rights issuance) was $2.20. ##### [260-10-55-61](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-61) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:57009ad1b80e6fc946f9e99421335de33932f70c5f0f3671c4579ecb222ffddb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As a result of the bonus element in the January 20X1 rights issue, basic and diluted EPS for 20X0 will have to be adjusted retroactively. The number of common shares used in computing basic and diluted EPS is the number of shares outstanding immediately prior to the rights issue (500) multiplied by an adjustment factor. Prior to computing the adjustment factor, the theoretical ex-rights fair value per share must be computed. Those computations follow. - ![](https://asc.understandingaccounting.org/asc-img/GUID-C33A934E-A93E-461B-9354-5FA7B8BCCFC9-low.gif) Theoretical ex-rights fair value per share (a) $10 = (500 × $11) + (100 × $5) (500 + 100) Adjustment factor (b) 1.1 = $11 ÷ $10 Denominator for restating basic EPS 550 = 500 × 1.1 Restated basic EPS for 20X0 $2.00 = " $1,100 ÷ 550 " (a) The equation for computing the theoretical ex-rights fair value per share is: Aggregate fair value of shares prior to exercise of rights + Proceeds from exercise of rights Total shares outstanding after exercise of rights (b) The equation for computing the adjustment factor is: Fair value per share immediately prior to exercise of rights Theoretical ex-rights fair value per share - Diluted EPS would be adjusted retroactively by adding 50 shares to the denominator that was used in computing diluted EPS prior to the restatement. ##### [260-10-55-62](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-62) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:a0fd685862b0b36765f296eb84ec8331f37cc3a8ebe9c32ef369702d0cb9aee3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the two-class method of computing basic EPS (see paragraph [260-10-45-60B](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-60B)) for an entity that has more than one class of nonconvertible securities. This method is described in paragraphs [260-10-45-59A through 45-70](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-59A) . Diluted EPS would be computed in a similar manner. This Example has the following assumptions for the year 20X0: 1. a Net income was $65,000. 2. b 10,000 shares of $50 par value common stock were outstanding. 3. c 5,000 shares of $100 par value nonconvertible preferred stock were outstanding. 4. d The preferred stock was entitled to a noncumulative annual dividend of $5 per share before any dividend is paid on common stock. 5. e After common stock has been paid a dividend of $2 per share, the preferred stock then participates in any additional dividends on a 40:60 per-share ratio with common stock. (That is, after preferred and common stock have been paid dividends of $5 and $2 per share, respectively, preferred stock participates in any additional dividends at a rate of two-thirds of the additional amount paid to common stock on a per-share basis.) 6. f Preferred stockholders have been paid $27,000 ($5.40 per share). 7. g Common stockholders have been paid $26,000 ($2.60 per share). ##### [260-10-55-63](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-63) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:01fd1c85772f7e33bd4a6a0fb98c4d607a025656647ec6a41ec5e4a2a1ac04c6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Basic EPS for 20X0 would be computed as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-44D50075-B5A1-450E-B79B-22F5EB76AD10-low.gif) Net income " $65,000 " Less dividends paid: Preferred " $27,000 " Common " 26,000 " " 53,000 " Undistributed 20X0 earnings " $12,000 " - ![](https://asc.understandingaccounting.org/asc-img/GUID-FE96FE09-4159-4DAC-90C2-5FBFA39E3A26-low.gif) Allocation of undistributed earnings: To preferred: "0.4(5,000) ÷ \[0.4(5,000) + 0.6(10,000)\] × $12,000 = $3,000" "$3,000 ÷ 5,000 shares = $0.60 per share" To common: "0.6(10,000) ÷ \[0.4(5,000) + 0.6(10,000)\] × $12,000 = $9,000" "$9,000 ÷ 10,000 shares = $0.90 per share" - ![](https://asc.understandingaccounting.org/asc-img/GUID-B679CB13-231B-473A-8F75-225F132950E9-low.gif) Basic per-share amounts: Preferred Stock Common Stock Distributed earnings $5.40 $2.60 Undistributed earnings 0.60 0.90 Totals $6.00 $3.50 ##### [260-10-55-64](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-64) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:e36fea567f3df305b5e8abad72436634c2f2456130d52a052723ba5bf748a4cd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the EPS computations for a subsidiary's securities that enable their holders to obtain the subsidiary's common stock based on the provisions in paragraph [260-10-55-20](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-20). The facts assumed are as follows: ##### [260-10-55-65](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-65) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:85dddac3343dd1e5950a054d4dadbfd8829b2427f66df757a51bb53f52fd1f1f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Parent Entity: 1. a Net income was $10,000 (excluding any earnings of or dividends paid by the subsidiary). 2. b 10,000 shares of common stock were outstanding; the parent entity had not issued any other securities. 3. c The parent entity owned 900 common shares of a domestic subsidiary entity. 4. d The parent entity owned 40 warrants issued by the subsidiary. 5. e The parent entity owned 100 shares of convertible preferred stock issued by the subsidiary. ##### [260-10-55-66](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-66) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:5e3b4bf4824f064ca9e1988d3e47e2f8fa6ce21bc593cb1b57d27ecb99384143 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Subsidiary Entity: 1. a Net income was $3,600. 2. b 1,000 shares of common stock were outstanding. 3. c Warrants exercisable to purchase 200 shares of its common stock at $10 per share (assume $20 average market price for common stock) were outstanding. 4. d 200 shares of convertible preferred stock were outstanding. Each share is convertible into two shares of common stock. 5. e The convertible preferred stock paid a dividend of $1.50 per share. 6. f No interentity eliminations or adjustments were necessary except for dividends. 7. g Income taxes have been ignored for simplicity. ##### [260-10-55-67](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-67) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:e2c35a74faa2d6d34a2abd623921de31c14dbaadf5280247389c3a2a3a63c805 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates subsidiary's EPS. - ![](https://asc.understandingaccounting.org/asc-img/GUID-89A1870A-3627-422E-8677-D2DBD30CC506-low.gif) Subsidiary's Earnings per Share Basic EPS $3.30 Computed: "($3,600(a) - $300(b)) ÷ 1,000(c)" Diluted EPS $2.40 Computed: "$3,600(d) ÷ (1,000 + 100(e) + 400(f))" Consolidated Earnings per Share Basic EPS $1.31 Computed: "($10,000(g) + $3,120(h)) ÷ 10,000(i)" Diluted EPS $1.27 Computed: "($10,000 + $2,160(j) + $48(k) + $480(l)) ÷ 10,000" (a) Subsidiary's net income (b) Dividends paid by subsidiary on convertible preferred stock (c) Shares of subsidiary's common stock outstanding (d) "Subsidiary's income available to common stockholders ($3,300) increased by $300 preferred dividends from applying the if-converted method for convertible preferred stock" (e) "Incremental shares from warrants from applying the treasury stock method, computed: \[($20 - $10) ÷ $20\] × 200" (f) "Shares of subsidiary's common stock assumed outstanding from conversion of convertible preferred stock, computed: 200 convertible preferred shares × conversion factor of 2" (g) Parent's net income (h) "Portion of subsidiary's income to be included in consolidated basic EPS, computed: (900 × $3.30) + (100 × $1.50)" (i) Shares of parent's common stock outstanding (j) "Parent's proportionate interest in subsidiary's earnings attributable to common stock, computed: (900 ÷ 1,000) × (1,000 shares × $2.40 per share)" (k) "Parent's proportionate interest in subsidiary's earnings attributable to warrants, computed: (40 ÷ 200) × (100 incremental shares × $2.40 per share)" (l) "Parent's proportionate interest in subsidiary's earnings attributable to convertible preferred stock, computed: (100 ÷ 200) × (400 shares from conversion × $2.40 per share)" ##### [260-10-55-68](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-68) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:1d5e6e78adefdd0a4583a69ba9cd69d5a6bb8abc1a0284e1b175673c44965732 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [260-10-45-28A](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-28A) for the application of the treasury stock method when share options are forfeited. ##### [260-10-55-69](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-69) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:e4d54d0ae71d5a9b752209ef09a7550e5b6caa770a931eab53d97638f7ffcf3c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A adopted a share option plan on January 1, 20X7, and granted 900,000 at-the-money share options with an exercise price of $30. All share options vest at the end of three years (cliff vesting). Entity A's accounting policy is to estimate the number of forfeitures expected to occur in accordance with paragraph [718-10-35-1D](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-1D) or [718-10-35-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-3). At the grant date, Entity A assumes an annual forfeiture rate of 3 percent and therefore expects to receive the service for 821,406 \[900,000 × (.97 to the third power)\] share options. On January 1, 20X7, the fair value of each share option granted is $14.69. Grantees forfeited 15,000 stock options ratably during 20X7. ##### [260-10-55-69A](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-69A) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:645917ee04fec1157852b4ebf1ce79df27bed7c43d828c0b155d04ab533606ac Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The average stock price during 20X7 is $44. Net income for the period is $97,385,602. For the year ended December 31, 20X7, there are 25,000,000 weighted-average common shares outstanding. This guidance also applies if the service inception date precedes the grant date. ##### [260-10-55-70](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-70) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:07ba5d0af003f516f68c72fce5b1bea4ad7a610378be1d86a3e62b82d0c690db Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following table illustrates computation of basic and diluted EPS for the year ended December 31, 20X7. - ![](https://asc.understandingaccounting.org/asc-img/GUID-4CD5AEF1-00F6-4B56-BFB2-FB552B81AFA6-low.gif) "Computation of Basic EPS for the Year Ended December 31, 20X7:" Net income " $97,385,602 " Weighted-average common shares outstanding " 25,000,000 " Basic earnings per share $3.90 Computation of assumed proceeds for diluted earnings per share: Amount employees would pay if the weighted-average number of options "outstanding were exercised using the average exercise price (892,500 (b) ? $30)" " $26,775,000 " Average unrecognized compensation cost in 20X7 (see computation) " 10,944,050 " Assumed proceeds " $37,719,050 " Computation of average unrecognized compensation cost in 20X7: Beginning of period "Unrecognized compensation cost (900,000 ? $14.69)" " $13,221,000 " End of the period Beginning of period " $13,221,000 " "Annual compensation cost recognized during 20X7, based on estimated forfeitures" " (4,022,151)" (a) "Annual compensation cost not recognized during the period related to outstanding options at December 31, 20X7, for which the requisite service is not expected to be rendered" " (311,399)" (c) Total compensation cost of actual forfeited options " (220,350)" (d) "Total unrecognized compensation cost, end of the period, based on actual forfeitures" " 8,667,100 " Subtotal " $21,888,100 " "Average total unrecognized compensation, based on actual forfeitures" " $10,944,050 " Assumed repurchase of shares: "Repurchase shares at average market price during the year ($37,719,050 ö $44)" " 857,251 " "Incremental shares (892,500 ? 857,251)" " 35,249 " "Computation of Diluted EPS for the Year Ended December 31, 20X7:" Net income " $97,385,602 " Weighted-average common shares outstanding " 25,000,000 " Incremental shares " 35,249 " Total shares outstanding " 25,035,249 " Diluted earnings per share $3.89 (a) "Pre-tax annual share-based compensation cost is $4,022,151 \[(821,406 ? $14.69) ö 3\]. " (b) "Share options granted at the beginning of the year plus share options outstanding at the end of the year divided by two equals the weighted-average number of share options outstanding in 20X7: \[(900,000 + 885,000) ö 2\] = 892,500. This example assumes that forfeitures occurred ratably throughout 20X7." (c) "885,000 (options outstanding at December 31, 20X7) ? 821,406 (options for which the requisite service is expected to be rendered) = 63,594. 63,594 options ? $14.69 (grant-date fair value per option) = $934,196 (total fair value). $934,196 ö 3 = $311,399 (annual share-based compensation cost)." (d) "15,000 (forfeited options) ? $14.69 (grant-date fair value per option) = $220,350 (total fair value)." ##### [260-10-55-71](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-71) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:51ee52f685f5de92bd5c69669246ea8f05b3f98109a3787831f0bcc2a26f13ec Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Participating securities should be included in the computation of [basic earnings per share](https://asc.understandingaccounting.org/glossary/b/#basic-earnings-per-share "The amount of earnings for the period available to each share of common stock outstanding during the reporting period.") using the two-class method. The following Cases illustrate the guidance in paragraphs [260-10-45-59A through 45-70](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-59A) for the application of the two-class method of computing basic earnings per share when: 1. a An entity has participating convertible preferred stock (Case A). 2. b An entity has participating convertible bonds (Case B). 3. c An entity has participating warrants (Case C). 4. d An entity has participating share-based payment awards (Case D). ##### [260-10-55-72](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-72) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:26ebf514162328776b093dbc5be2a3d1400aba74705439bc25e5b7211602380a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The application of the two-class method in each of Cases A, B, and C presents an EPS calculation for both the common stock and the participating security. This presentation is for illustrative purposes only. The presentation of EPS is only required for each class of common stock (as clarified by this Example). However, the presentation of basic and diluted EPS for a participating security other than common stock is not precluded. Cases A, B, and C share both of the following assumptions: 1. a 10,000 shares of Class A common stock 2. b Reported net income of $65,000 for 20X1. ##### [260-10-55-73](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-73) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:525598015ae55530fc1495aadd377a3acc22e54b18d1b2940e2d479c28a3f510 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that Entity A had 5,000 shares of preferred stock outstanding during 20X1. Each share of preferred stock is convertible into two shares of Class A common stock. The preferred stock is entitled to a noncumulative annual dividend of $5 per share. After Class A has been paid a dividend of $2 per share, the preferred stock then participates in any additional dividends on a 40:60 per share ratio with Class A. For 20X1, the Class A shareholders have been paid $26,000 (or $2.60 per share), and the preferred shareholders have been paid $27,000 (or $5.40 per share). Basic EPS under the two-class method for 20X1 would be computed as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-67B6D19B-2099-4C25-8A9E-37B58E516BED-low.gif) Net income " $65,000 " Less dividends paid: Class A common " $26,000 " Preferred stock " 27,000 " " 53,000 " Undistributed 20X1 earnings " $12,000 " Allocation of undistributed earnings: To preferred: "0.4(5,000) ÷ \[0.4(5,000) + 0.6(10,000)\] x $12,000 = $3,000" "$3,000 ÷ 5,000 shares = $0.60 per share" To common: "0.6(10,000) ÷ \[0.4(5,000) + 0.6(10,000)\] x $12,000 = $9,000" "$9,000 ÷ 10,000 shares = $0.90 per share" Basic earnings per share amounts: Preferred Class A Distributed earnings $5.40 $2.60 Undistributed earnings 0.60 0.90 Total $6.00 $3.50 ##### [260-10-55-74](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-74) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:ea8d0493f208d48ef0f697f93b756a9c3760e949988654a7c237ea5ab2c35144 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that on January 1, 20X1, Entity A issues 1,000 30-year convertible bonds with an aggregate par value of $1,000,000. Each bond is convertible into 8 shares of Class A common stock and carries a coupon rate of 3 percent. After Class A has been paid a dividend of $2 per share, the bondholders then participate in any additional dividends on a 40:60 per share ratio with Class A shareholders. The bondholders receive common stock dividends based on the number of shares of common stock that the bonds are convertible into. The bondholders do not have any voting rights prior to conversion into common stock. For 20X1, the Class A shareholders have been paid $20,000 (or $2.00 per share). Basic EPS under the two-class method for 20X1 would be computed as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-E990475D-F00B-49D2-A200-F7AB6E437EB6-low.gif) Net income " $65,000 " Less dividends paid: Class A common " $20,000 " " 20,000 " Undistributed 20X1 earnings " $45,000 " Allocation of undistributed earnings: \` To convertible bonds: "0.4(8,000) ÷ \[0.4(8,000) + 0.6(10,000)\] x $45,000 = $15,652" "$15,652 ÷ 8,000 shares = $1.96 per share" To common: "0.6(10,000) ÷ \[0.4(8,000) + 0.6(10,000)\] x $45,000 = $29,348" "$29,348 ÷ 10,000 shares = $2.93 per share" Basic earnings per share amounts: Convertible Bonds Class A Distributed earnings $- $2.00 Undistributed earnings 1.96 2.93 Total $1.96 $4.93 ##### [260-10-55-75](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-75) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:389a597f9acd883d938e03e6aa03719f69a2fb90b2370bd3cbbe049c23c8dd53 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that Entity A had warrants to purchase 5,000 shares of common stock outstanding during 20X1 Each warrant entitles the holder to purchase 1 share of common stock at $10 (fair value at date of grant) per share. In addition, the warrant holders receive dividends on the underlying common stock to the extent they are declared. For 20X1, common shareholders have been paid $26,000 (or $2.60 per share), and the warrant holders have been paid $13,000 (or, also, $2.60 per share). Basic EPS under the two-class method for 20X1 would be computed as follows: - ![](https://asc.understandingaccounting.org/asc-img/GUID-AF728E5F-C8B8-4563-9F38-DC0B140607FF-low.gif) Net income " $65,000 " Less dividends paid: Common stock " $26,000 " Warrants " 13,000 " " 39,000 " Undistributed 20X1 earnings " $26,000 " Allocation of undistributed earnings: To warrants: "0.5(5,000) ÷ \[0.5(5,000) + 0.5(10,000)\] x $26,000 = $8,667" "$8,667 ÷ 5,000 shares = $1.73 per share" To common: "0.5(10,000) ÷ \[0.5(5,000) + 0.5(10,000)\] x $26,000 = $17,333" "$17,333 ÷ 10,000 shares = $1.73 per share" Or, to simplify, since the common shareholders and the warrant holders share in dividends on a one-to-one basis, undistributed earnings could also be calculated as follows. - ![](https://asc.understandingaccounting.org/asc-img/GUID-27A07B32-AD94-458F-BF51-060B2A74DB5E-low.gif) "$26,000 ÷ 15,000 shares = $1.73 per common share and warrant." Basic earnings per share amounts: Common Warrants Distributed earnings $2.60 $2.60 Undistributed earnings 1.73 1.73 Total $4.33 $4.33 ##### [260-10-55-76](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-76) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:d48a1d14bc3a24a69917436d8ba2eedc68714350132bf37f25b1e7821d4e4594 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [260-10-55-76A](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-76A) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:b0e0a5812c50f6e13684b9848fd18db3fb0724b01348c8f71ce289bc505d9d96 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that Entity A had 25,000 shares of common stock and 5,000 unvested share-based payment awards outstanding during 20X8 and reported net income of $100,000. The share-based payment awards participate in any dividends on a 1:1 per-share ratio with common stock, and the dividends are nonforfeitable by the holder of the share-based payment awards. Entity A's accounting policy is to estimate the number of forfeitures expected to occur in accordance with paragraph [718-10-35-3](https://asc.understandingaccounting.org/asc/718/10/#718-10-35-3). ##### [260-10-55-76B](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-76B) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:404ede79c478d2cfc557f9bece359152af6496506e53143aae995547420cf7ed Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. As of the beginning of 20X8, Entity A estimated that the requisite service will not be provided for 200 of the 5,000 share-based payment awards outstanding. At the end of 20X8, Entity A adjusts its estimate to reflect an increased expected forfeiture rate and now expects that the requisite service will not be provided for 300 awards. It recognizes the cumulative effect of this change in compensation cost in the current period. ##### [260-10-55-76C](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-76C) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:3fae21112f153b4f25d9bc2104f40ec58ddcf0189605224cf32ab179df11855c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Entity A paid a $1.50 per-share dividend at the end of 20X8. Net income includes an expense of $450 related to dividends paid to the awards for which the requisite service is not expected to be rendered in accordance with paragraph [718-10-55-45](https://asc.understandingaccounting.org/asc/718/10/#718-10-55-45). Basic EPS under the two-class method for 20X8 would be computed as follows: - ![](https://asc.understandingaccounting.org/asc-img/GUID-0FBC2CF6-7BA2-4CE3-A27F-BAF52C5BC261-low.gif) Net income " $100,000.00 " Less dividends paid: Common stock " $37,500.00 " Unvested share-based payment awards " $7,050.00 " (a) " $44,550.00 " Undistributed earnings " $55,450.00 " (a) "Reflects the dividends paid to unvested share-based payment awards ($7,500 = 5,000 unvested share-based paymentawards × $1.50 dividend per share) less the dividends paid to awards for which the requisite service is not expected to be rendered ($450 = 300 share-based payment awards for which the requisite service is not expected to be rendered × $1.50 dividend per share). Dividends paid on awards for which the requisite service is not expected to be rendered are already recognized in net income as additional compensation cost." - ![](https://asc.understandingaccounting.org/asc-img/GUID-D2274CA6-4FF2-4DAB-BAD5-A32100BDF4AE-low.gif) Allocation of undistributed earnings: To unvested share-based payment awards: "5,000 ÷ (5,000 + 25,000) × $55,450 = $9,242" "$9,242 ÷ 5,000 total unvested share-based payment awards = $1.85 per share" To common: "25,000 ÷ (5,000 + 25,000) × $55,450 = $46,208" "$46,208 ÷ 25,000 shares of common stock = $1.85 per share" - Or, to simplify, because the common shareholders and the share-based payment award holders share in dividends on a 1:1 basis, undistributed earnings could also be calculated as follows: - ![](https://asc.understandingaccounting.org/asc-img/GUID-A0DD9BC9-BBEF-4113-9F92-0A22CB581BB9-low.gif) " $55,450 ÷ 30,000 shares(b) = $1.85 per common share and share-based payment award" "(b) 25,000 shares of common stock + 5,000 total unvested share-based payment awards" - ![](https://asc.understandingaccounting.org/asc-img/GUID-B3EA5343-F02E-4FFA-A0F0-B80ECCD92BDC-low.gif) Basic earnings per share amounts: (c) "$7,050 of distributed earnings allocated to the unvested share-based payment awards divided by 5,000 total unvested share-based payment awards. Although all unvested share-based payment awards received a payment of $1.50 per share, totaling $7,500, only dividends to awards for which the requisite service is expected to be rendered are considered distributed earnings as that term is used in paragraph 260-10-55-19(a). Dividends paid on awards for which the requisite service is not expected to be rendered are recognized in net income as additional compensation cost." ##### [260-10-55-76D](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-76D) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:e501a4ee8d4bbe04b0ba575996948d49cbb892cd3c366147bdd81e079c136142 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Note that in this illustrative example, application of the two-class method presents an EPS calculation for both the common stock and the participating security, that is, the unvested share-based payment awards. This presentation is for illustrative purposes only. The presentation of EPS is only required for each class of common stock. However, the presentation of basic and diluted EPS for a participating security other than common stock is not precluded. The disclosure in the notes to financial statements of actual distributions to unvested share-based payment awards, rather than the amount presented as distributed earnings, also is not precluded to reconcile earnings per common share and per unvested share-based payment awards. For example, Entity A in the example above may disclose that actual distributions to unvested share-based payment awards were $7,500 and that $450 of those distributions was included in net income as compensation cost related to awards for which the requisite service is not expected to be rendered. Disclosure on a per-share basis also is not precluded. ##### [260-10-55-77](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-77) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:e8a3906730096a280fbf778f16bb6c7463488ba9e9cfa97dc90279afec3939b8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [260-10-55-78](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-78) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:7bc827872c08bef4e60028bda5247201bcaa114768381fcdd9b58607b0a84b95 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the guidance in paragraphs [260-10-45-43 through 45-46](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-43) related to diluted EPS computations for three examples of contingently convertible instruments: 1. a Contingently convertible debt with a market price trigger (Case A) 2. b Contingently convertible debt with a market price trigger, issuer must settle the principal amount of the debt in cash, but may settle any conversion premium in either cash or stock (Case B) 3. c Convertible debt for which the principal and conversion premium can be settled in any combination of shares or cash (Case C). ##### [260-10-55-79](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-79) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:0a50264904145d49ecacbdc8b4d582ee727f3420a3b89f49c53d486c256a728f Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Cases A, B, and C share all of the following assumptions: 1. a Principal amount of the convertible debt: $1,000 2. b Conversion ratio: 20 3. c Conversion price per share of common stock: $50 Conversion price = (Convertible bond's principal amount) ÷ (Conversion ratio) = $1,000 ÷ 20 = $50. 4. d Share price of common stock at issuance: $40 5. e Market price trigger: average share price for the year must exceed $65 (130% of conversion price) 6. f Interest rate: 4% 7. g Effective tax rate: 35% 8. h Shares of common stock outstanding: 2,000. ##### [260-10-55-80](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-80) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:e2695a2c93acd7a8ef5ca4d08e69b819b1fbcdb14bdc91e9b360327649cd7a81 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [260-10-55-81](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-81) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:0e48d8ccd678b372243bbb50b610cd5d03ba3276b713935ed1508517d6a7a615 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The holder of the debt may convert the debt into shares of common stock when the share price exceeds the market price trigger; otherwise, the holder is only entitled to the par value of the debt. ##### [260-10-55-82](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-82) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:776706ca5e94fd569188569c69aec9643ee4d9f20b9fac114e8b3fab7e487079 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The contingently convertible debt is issued on January 1, 200X, income available to common shareholders for the year ended December 31, 200X, is $10,000, and the average share price for the year is $55. The issuer of the contingently convertible debt should apply the guidance in paragraphs [260-10-45-43 through 45-44](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-43) which requires the issuer to include the dilutive effect of the convertible debt in diluted EPS even though the market price trigger of $65 has not been met. In this Case, basic EPS is $5.00. (Basic EPS = \[Income available to common shareholders (IACS)\] ÷ \[Shares outstanding (SO)\] = $10,000 ÷ 2,000 shares = $5.00 per share) and applying the if-converted method to the debt instrument dilutes EPS to $4.96 (Diluted EPS computed using the if-converted method = \[IACS + Interest (1-tax rate)\] ÷ (SO + Potential common shares) = ($10,000 + $26) ÷ (2,000 + 20) shares = $4.96 per share.) ##### [260-10-55-83](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-83) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:40a755a23bd78172f4096a4af9b752bb64bd7ff954a645a2c5f2961e1967b3db Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [260-10-55-84](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-84) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:69aaa4c336027f431ad5f7a0a34be0e4d4987bf8b3546124100e6830ae543915 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The issuer of the contingently convertible debt must settle the principal amount of the debt in cash upon conversion and it may settle any conversion premium in either cash or stock. The holder of the instrument is only entitled to the conversion premium if the share price exceeds the market price trigger. The contingently convertible instrument is issued on January 1, 200X, income available to common shareholders for the year ended December 31, 200X is $9,980, and the average share price for the year is $64. ##### [260-10-55-84A](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-84A) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:546aa6f0afd4bd1f8efc19c63b14f3e9869d472b0d0139aea2b9cb17c5b0590a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The if-converted method should be used to determine the earnings-per-share implications of convertible debt with the characteristics described in this Case. There would be no adjustment to the numerator in the diluted earnings-per-share computation for the cash-settled portion of the instrument (the principal amount of the debt) because that portion will always be settled in cash (see paragraph [260-10-45-40](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-40)). The conversion premium should be included in diluted earnings per share based on the provisions of paragraphs [260-10-45-45 through 45-46](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-45) and [260-10-55-32 through 55-36A](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-32). The convertible debt instrument in this Case is subject to other applicable guidance in Subtopic 260-10 as well, including the antidilution provisions of that Subtopic. ##### [260-10-55-84B](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-84B) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:b6d0e1a4e85acd413543bdf8408ec092708f45c8e34234a5092f8a1acda62eb9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this Example, basic EPS is $4.99, and diluted earnings per share is $4.98. Basic EPS = IACS ÷ SO = $9,980 ÷ 2,000 shares = $4.99 per share. Diluted EPS would be calculated using the if-converted method by determining the number of shares needed to settle the conversion premium and adding that amount to shares outstanding to calculate the diluted EPS denominator. The average market price is used to determine the dilution in accordance with paragraph [260-10-45-21A](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-21A). The effect would be dilutive in this case because the average market price of the shares exceeds the conversion price. However, if the average market price of the shares was less than the conversion price, then the conversion premium would be zero and there would be no dilutive effect. Diluted EPS = IACS ÷ (SO + Potential common shares) = ($9,980) ÷ (2,000 + 4.38) shares = $4.98 per share. Potential common shares = (Conversion spread value) ÷ (Average share price) = $14 × 20 shares ÷ $64 = 4.38 shares. ##### [260-10-55-84C](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-84C) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:59e8adf4e600a543f81a32c14f5ab65fe3b7d108c70bdb7e05987126fb3ee2d3 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The issuer of the convertible debt can settle the principal and the conversion premium in any combination of cash or shares (the issuer has the option). Consistent with the facts in Case B, the convertible instrument is issued on January 1, 200X, income available to common shareholders for the year ended December 31, 200X, is $9,980, and the average share price for the year is $64. ##### [260-10-55-84D](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-84D) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:9ed57548b288d6f2dbbb2f2f53e6725ac08c49180dff5a154b1d9a6a87219eaa Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The if-converted method should be used to determine the earnings-per-share implications of convertible debt. The effect of settling the principal and conversion premium in shares is included for purposes of calculating diluted earnings per share in accordance with the guidance in paragraph [260-10-45-45](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-45). ##### [260-10-55-84E](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-84E) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:36d0e5b424ae6d987390dea7ca4db75401fb593b74dffd54104c97bf6717a3b6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In this case, basic EPS is $4.99 (the same calculation in paragraph [260-10-55-84B](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-84B)), and diluted earnings per share is $4.95. Diluted EPS is calculated using the if-converted method = \[IACS + Interest (1-tax rate)\] ÷ (SO + Potential common shares) = (9,980 + 26) ÷ (2,000 + 20). See paragraph [260-10-55-82](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-82) for interest expense amount. ##### [260-10-55-85](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-85) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:24b1619ef98dd68a5f2365a411b16b3e5800230f0aa19e8aeaadb302cb2b5754 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following Cases illustrate the guidance in paragraphs [260-10-55-3A through 55-3B](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-3A) for the quarterly and annual computations of basic and diluted EPS for a company with options outstanding (equal to 20,000 incremental shares) that were in the money for the entire year (for simplicity purposes, this Example assumes that the stock price never changed). Case A addresses year-to-date loss, and Case B addresses year-to-date income. Note that in Case A, due to a loss for the period, zero incremental shares are included because the effect would be antidilutive. Note that in Case B, zero shares included due to loss in the period. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [260-10-65-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-65-5)The following Cases illustrate the guidance in paragraphs [260-10-55-3A](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-3A)and [260-10-55-3C](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-3C)for the quarterly and annual computations of basic and diluted EPS for a company with options outstanding (equal to 20,000 incremental shares) that were in the money for the entire year (for simplicity purposes, this Example assumes that the stock price never changed). Case A addresses year-to-date loss, and Case B addresses year-to-date income. Note that in Case A, zero incremental shares are included because the effect would be antidilutive. Note that in Case B, zero incremental shares are included in the quarterly diluted EPS computations for the first and second quarters or in the year-to-date diluted EPS computations for the three- and six-month periods because the effect would be antidilutive. ##### [260-10-55-86](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-86) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:09d2aaefee06dcefbb80ccf2b0ef04965fd85ce5701eb239f60d7ff3452ddf7a Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following tables illustrate the computation of quarterly and year-to-date EPS. - ![](https://asc.understandingaccounting.org/asc-img/GUID-B0FBC18B-D97D-4F63-83ED-4FF00D075AED-low.gif) Quarterly First Quarter Second Quarter Third Quarter Fourth Quarter Income from continuing operations " $50,000 " " $(150,000)" " $50,000 " " $(200,000)" Common shares "100,000 " "100,000 " "100,000 " "100,000 " Incremental shares "20,000 " 0 (a) "20,000 " 0 (a) Basic EPS $0.50 $(1.50) $0.50 $(2.00) Diluted EPS $0.42 $(1.50) $0.42 $(2.00) (a) "Due to a loss for the period, zero incremental shares are included because the effect would be antidilutive." - ![](https://asc.understandingaccounting.org/asc-img/GUID-CA2812B1-DA66-42DC-B9FE-EE7630CC996F-low.gif) Year-to-Date Three Months Six Months Nine Months Full Year Income from continuing operations " $50,000 " " $(100,000)" " $(50,000)" " $(250,000)" Common shares "100,000 " "100,000 " "100,000 " "100,000 " Incremental shares "20,000 " 0 (a) 0 (a) 0 (a) Basic EPS $0.50 $(1.00) $(0.50) $(2.50) Diluted EPS $0.42 $(1.00) $(0.50) $(2.50) (a) "Due to a loss for the period, zero incremental shares are included because the effect would be antidilutive." Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [260-10-65-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-65-5)The following tables illustrate the computation of quarterly and year-to-date EPS. - ![](https://asc.understandingaccounting.org/asc-img/GUID-9DC6CA72-5A11-4E09-8470-AC04D09DE07E-low.gif) Quarterly First Quarter Second Quarter Third Quarter Fourth Quarter Income from continuing operations " $50,000 " " $(150,000)" " $50,000 " " $(200,000)" Common shares "100,000 " "100,000 " "100,000 " "100,000 " Incremental shares "20,000 " 0 (a) "20,000 " 0 (a) Basic EPS $0.50 $(1.50) $0.50 $(2.00) Diluted EPS $0.42 $(1.50) $0.42 $(2.00) (a) "Zero incremental shares are included because the effect would be antidilutive." - ![](https://asc.understandingaccounting.org/asc-img/GUID-D3B1CF80-5BEC-4E54-AD00-BE7497B746C1-low.gif) Year-to-Date Three Months Six Months Nine Months Full Year Income from continuing operations " $50,000 " " $(100,000)" " $(50,000)" " $(250,000)" Common shares "100,000 " "100,000 " "100,000 " "100,000 " Incremental shares "20,000 " 0 (a) 0 (a) 0 (a) Basic EPS $0.50 $(1.00) $(0.50) $(2.50) Diluted EPS $0.42 $(1.00) $(0.50) $(2.50) (a) "Zero incremental shares are included because the effect would be antidilutive." ##### [260-10-55-87](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-87) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:1baa0d2aa744ad2354db0cb4ddc0bf4a6f2ced0f016b52e14c4bac8c0a088da1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following tables illustrate the computation of quarterly and year-to-date EPS. - ![](https://asc.understandingaccounting.org/asc-img/GUID-A01F39DA-73CC-4B65-8FAA-CB943F34EA31-low.gif) Quarterly First Quarter Second Quarter Third Quarter Fourth Quarter Income from continuing operations $(5,000) $(5,000) $110,000 $200,000 Common shares 100,000 100,000 100,000 100,000 Incremental shares 0 (a) 0 (a) 20,000 20,000 Basic EPS $(0.05) $(0.05) $1.10 $2.00 Diluted EPS $(0.05) $(0.05) $0.92 $1.67 (a) Zero shares included due to loss in the period. - ![](https://asc.understandingaccounting.org/asc-img/GUID-720E1F9D-D77F-44F7-B7DE-C09F11A0291F-low.gif) Year-to-Date Three Months Six Months Nine Months Full Year Income from continuing operations $(5,000) $(10,000) $100,000 $300,000 Common shares 100,000 100,000 100,000 100,000 Incremental shares 0 (a) 0 (a) 20,000 (b) 20,000 (c) Basic EPS $(0.05) $(0.10) $1.00 $3.00 Diluted EPS $(0.05) $(0.10) $0.83 $2.50 (a) Zero shares included due to loss in the period. (b) Nine-month computation: (20 + 20 + 20) ÷ 3 (c) Full-year computation: (20 + 20 + 20 + 20) ÷ 4 - Note that if the options had been out of the money in any quarter, zero incremental shares would have been included for that quarter in the year-to-date averaging. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [260-10-65-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-65-5)The following tables illustrate the computation of quarterly and year-to-date EPS. - ![](https://asc.understandingaccounting.org/asc-img/GUID-609A499F-ABCD-4325-B0BB-B897506BE34E-low.gif) Quarterly First Quarter Second Quarter Third Quarter Fourth Quarter Income from continuing operations $(5,000) $(5,000) $110,000 $200,000 Common shares 100,000 100,000 100,000 100,000 Incremental shares 0 (a) 0 (a) 20,000 20,000 Basic EPS $(0.05) $(0.05) $1.10 $2.00 Diluted EPS $(0.05) $(0.05) $0.92 $1.67 (a) Zero incremental shares are included because the effect would be antidilutive. - ![](https://asc.understandingaccounting.org/asc-img/GUID-CD0A4722-102F-47CA-BBD5-E0995FDF56F0-low.gif) Year-to-Date Three Months Six Months Nine Months Full Year Income from continuing operations $(5,000) $(10,000) $100,000 $300,000 Common shares 100,000 100,000 100,000 100,000 Incremental shares 0 (a) 0 (a) 20,000 (b) 20,000 (c) Basic EPS $(0.05) $(0.10) $1.00 $3.00 Diluted EPS $(0.05) $(0.10) $0.83 $2.50 (a) Zero incremental shares are included because the effect would be antidilutive. (b) Nine-month computation: (20 + 20 + 20) ÷ 3 (c) Full-year computation: (20 + 20 + 20 + 20) ÷ 4 - Note that if the options had been out of the money in any quarter, zero incremental shares would have been included for that quarter in the year-to-date averaging. ##### [260-10-55-88](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-88) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:3f1a2747163c8123c57ccf7063920ba178ade8dac648e9d50292f1303b32a662 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Example 1 in Subtopic 505-30 (see paragraph [505-30-55-1](https://asc.understandingaccounting.org/asc/505/30/#505-30-55-1)) illustrates the accounting for what is sometimes described as an accelerated share repurchase program. In that Example, separate transactions involving a treasury stock purchase and a forward contract are addressed. This Example addresses the EPS consequences of those transactions. ##### [260-10-55-89](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-89) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:6534c095da35d5e9a41c18644d30e8d58d24cacfd10cdae9483361dd1fbeabd1 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The treasury stock transaction would result in an immediate reduction of the outstanding shares used to calculate the weighted-average common shares outstanding for both basic and diluted EPS. The effect of the forward contract on diluted EPS would be calculated in accordance with this Subtopic. ##### [260-10-55-90](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-90) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:fa136dbd14e6fa69de15cf683e4a4341f14b284fd8a989b30bcabce91baf23d4 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraph [260-10-45-18](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-18). Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [260-10-65-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-65-5)
Editor's Note: Paragraph 260-10-55-90 will be amended upon transition, together with its heading:
• > Example 14: Potential Antidilutive Securities
This Example illustrates the guidance in paragraphs [260-10-45-18 through 45-20](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-18) . ##### [260-10-55-91](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-91) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:cd2682c7b1b460acce2d222a7a0438a8c15de9298ca05968d2eb2a56c3db4d25 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume that Entity A has income from continuing operations of $2,400, a loss from discontinued operations of $(3,600), a net loss of $(1,200), and 1,000 common shares and 200 potential common shares outstanding. Entity A's basic per-share amounts would be $2.40 for continuing operations, $(3.60) for the discontinued operation, and $(1.20) for the net loss. Entity A would include the 200 potential common shares in the denominator of its diluted per-share computation for continuing operations because the resulting $2.00 per share is dilutive. (For illustrative purposes, assume no numerator impact of those 200 potential common shares.) Because income from continuing operations is the control number, Entity A also must include those 200 potential common shares in the denominator for the other per-share amounts, even though the resulting per-share amounts \[$(3.00) per share for the loss from discontinued operation and $(1.00) per share for the net loss\] are antidilutive to their comparable basic per-share amounts; that is, the loss per-share amounts are less. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [260-10-65-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-65-5)Assume that Entity A has income from continuing operations of $2,400, a loss from discontinued operations of $(3,600), a net loss of $(1,200), and 1,000 common shares outstanding and 200 potential common shares outstanding. Entity A's basic per-share amounts would be $2.40 for continuing operations, $(3.60) for the discontinued operation, and $(1.20) for the net loss. Entity A would include the 200 potential common shares in the denominator of its diluted per-share computation for continuing operations because the resulting $2.00 per share is dilutive. (For illustrative purposes, assume no numerator impact of those 200 potential common shares because they are from an equity classified instrument.) Because income from continuing operations is the control number, Entity A also must include those 200 potential common shares in the denominator for the other per-share amounts, even though the resulting per-share amounts \[$(3.00) per share for the loss from discontinued operation and $(1.00) per share for the net loss\] are antidilutive to their comparable basic per-share amounts; that is, the loss per-share amounts are less. ##### [260-10-55-91A](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-91A) Pending content: yes Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:ac97b9cd47408f8bb5201ed49667391cfcedee77c8c3656b67eae9d011f801c5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Transition date:(P) December 16, 2026; (N) December 16, 2026Transition guidance: [260-10-65-5](https://asc.understandingaccounting.org/asc/260/10/#260-10-65-5)However, assume that Entity A has a loss from continuing operations of $(380), a loss from discontinued operations of $(3,600), a net loss of $(3,980), and 1,000 common shares outstanding and 200 potential common shares outstanding from a liability classified instrument. During the period, Entity A recognized a fair value gain of $200, net of income tax, for the liability classified instrument. Entity A’s basic per-share amounts would be $(0.38) for continuing operations, $(3.60) for the discontinued operation, and $(3.98) for the net loss. For the diluted per-share computation, Entity A would make the following adjustments: 1. a Adjust the numerator to remove the effect of the fair value gain of $200 recognized in the period for the liability classified instrument, resulting in an adjusted loss from continuing operations of $(580) and an adjusted net loss of $(4,180) 2. b Adjust the denominator by including the 200 potential common shares. Because loss from continuing operations is the control number and the combined effect of the adjustments has a dilutive effect, Entity A must include those adjustments in the diluted per-share computations and would report diluted per-share amounts of $(0.48) for continuing operations, $(3.00) for discontinued operations, and $(3.48) for the net loss for the period. ##### [260-10-55-92](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-92) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:812668fbb87431ef20db8fb51203de5634e3c15878c1c63b53edbd18b76f34b9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Example illustrates the guidance in paragraphs [260-10-45-22 through 45-23](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-22) . ##### [260-10-55-93](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-93) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:b89ca4a909af9443a02753baac8394b1f3c697c9aee3db0c78e55206ef581085 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Consider Entity A that has 10,000 warrants outstanding exercisable at $54 per share; the average market price of the common stock during the reporting period is $60. Exercise of the warrants and issuance of 10,000 shares of common stock would be assumed. The $540,000 that would be realized from exercise of the warrants ($54 × 10,000) would be an amount sufficient to acquire 9,000 shares ($540,000/$60). Thus, 1,000 incremental shares (10,000 - 9,000) would be added to the outstanding common shares in computing diluted EPS for the period. ##### [260-10-55-94](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-94) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:e32d9fa8366fb0cdd5f57a11c07194b6e5f9cd4acd7636a252488322a2588cb6 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The following is a shortcut formula for that computation (note that this formula may not be appropriate for share-based compensation awards \[see paragraph [260-10-45-29](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-29)\]): - Incremental shares = \[(market price - exercise price)/market price\] x shares assumed issued under option; thus, \[($60 - $54)/$60\] x10,000 = 1,000 incremental shares. ##### [260-10-55-95](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-95) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:a90da805d9d73933a8ff8511b7de4d2facec609ca2857452805261da4fa3fd3e Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Assume Entity A issues warrants that permit the holder to buy 100 shares of its common stock for $10 per share and that Entity A presents EPS in accordance with the guidance in this Topic. The warrants have a 10-year term, are exercisable at any time, and contain a [down round feature](https://asc.understandingaccounting.org/glossary/d/#down-round-feature "A feature in a financial instrument that reduces the strike price of an issued financial instrument if the issuer sells shares of its stock for an amount less than the currently stated strike price of the issued financial instrument or issues an equity-linked financial instrument with a strike price below the currently stated strike price of the issued financial instrument. A down round feature may reduce the strike price of a financial instrument to the current issuance price, or the reduction may be limited by a floor or on the basis of a formula that results in a price that is at a discount to the original exercise price but above the new issuance price of the shares, or may reduce the strike price to below the current issuance price. A standard antidilution provision is not considered a down round feature."). The warrants are classified as equity by Entity A because they are indexed to the entity's own stock and meet the additional conditions necessary for equity classification in accordance with the guidance in Subtopic 815-40 on derivatives and hedging—contracts in entity's own equity (see paragraphs [815-40-55-33 through 55-34A](https://asc.understandingaccounting.org/asc/815/40/#815-40-55-33) for an illustration of the guidance in Subtopic 815-40 applied to a warrant with a down round feature). Because the warrants are an equity-classified freestanding [financial instrument](https://asc.understandingaccounting.org/glossary/f/#financial-instrument "Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. All contractual rights (contractual obligations) that are financial instruments meet the definition of asset (liability) set forth in FASB Concepts Statement No. 6, Elements of Financial Statements, although some may not be recognized as assets (liabilities) in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity. (P) December 16, 2024; (N) December 16, 2025105-10-65-9Cash, evidence of an ownership interest in an entity, or a contract that both: Imposes on one entity a contractual obligation either: To deliver cash or another financial instrument to a second entity To exchange other financial instruments on potentially unfavorable terms with the second entity. Conveys to that second entity a contractual right either: To receive cash or another financial instrument from the first entity To exchange other financial instruments on potentially favorable terms with the first entity. The use of the term financial instrument in this definition is recursive (because the term financial instrument is included in it), though it is not circular. The definition requires a chain of contractual obligations that ends with the delivery of cash or an ownership interest in an entity. Any number of obligations to deliver financial instruments can be links in a chain that qualifies a particular contract as a financial instrument. Contractual rights and contractual obligations encompass both those that are conditioned on the occurrence of a specified event and those that are not. Some contractual rights (contractual obligations) that are financial instruments may not be recognized in financial statements—that is, they may be off-balance-sheet—because they fail to meet some other criterion for recognition. For some financial instruments, the right is held by or the obligation is due from (or the obligation is owed to or by) a group of entities rather than a single entity."), they are within the scope of the recognition and measurement guidance in this Topic. The terms of the down round feature specify that if Entity A issues additional shares of its common stock for an amount less than $10 per share or issues an equity-classified financial instrument with a strike price below $10 per share, the strike price of the warrants would be reduced to the most recent issuance price or strike price, but the terms of the down round feature are such that the strike price cannot be reduced below $8 per share. After issuing the warrants, Entity A issues shares of its common stock at $7 per share. Because of the subsequent round of financing occurring at a share price below the strike price of the warrants, the down round feature in the warrants is triggered and the strike price of the warrants is reduced to $8 per share. ##### [260-10-55-96](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-96) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:223866be754512eefd7e83028c30217437a4407c7715f7d39eab889f6773b5cc Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In accordance with the measurement guidance in paragraphs [260-10-30-1 through 30-2](https://asc.understandingaccounting.org/asc/260/10/#260-10-30-1) , Entity A determines that the fair value of the warrants (without the down round feature) with a strike price of $10 per share immediately after the down round feature is triggered is $600 and that the fair value of the warrants (without the down round feature) with a strike price of $8 per share immediately after the down round feature is triggered is $750. The increase in the value of $150 is the value of the effect of the triggering of the down round feature. ##### [260-10-55-97](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-97) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:978e9c67dcad1192810396394682183bff1a09967117022310c4d81e89de58dd Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The $150 increase is the value of the effect of the down round feature to be recognized in equity in accordance with paragraph [260-10-25-1](https://asc.understandingaccounting.org/asc/260/10/#260-10-25-1), as follows: - ![](https://asc.understandingaccounting.org/asc-img/GUID-AA8C50BF-B92C-4C1B-8209-2449C950EF59-low.gif) Retained earnings $150 Additional paid-in capital $150 Additionally, Entity A reduces income available to common stockholders in its basic EPS calculation by $150 in accordance with the guidance in paragraph [260-10-45-12B](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-12B). Entity A applies the treasury stock method in accordance with paragraphs [260-10-45-23 through 45-27](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-23) to calculate diluted EPS. Accordingly, the $150 is added back to income available to common stockholders when calculating diluted EPS. However, the treasury stock method would not be applied if the effect were to be antidilutive. ##### [260-10-55-98](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-98) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:368fd1c1942ade3db03a294a02adebfb029cae25af84728b0401c9dc1a28d9d9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [260-10-55-99](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-99) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:087e2a3f88d87ae4d49cd1a867c2d64f958a9a9bc775d196e2621b821d76561c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [260-10-55-100](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-100) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:b414875661d60f9435cd3c22dbd6c731a46d8b5c84dcbc934fbe56af4fbf37cb Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ##### [260-10-55-101](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-101) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:f66d1d8eb2790ebd2846c2b48e9bb88744fb58100387dd7e5308242e014234c7 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph not used](https://asc.understandingaccounting.org/updates/page-1833002/). ### Master Limited Partnerships ##### [260-10-55-102](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-102) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:90cf4f46b43fcedf24f477b503a7c2810302b11d1eb81db127d4ee9ef5aaadf0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. This Subsection, which is an integral part of the requirements of this Subtopic, provides general guidance used to compute earnings per unit for master limited partnerships. #### Implementation Guidance ##### [260-10-55-103](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-103) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:4392e84ac6c2aa8be9e5daf0e6a900a2e3f322f7b288af07cc469fd244dc2bb2 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When calculating earnings per unit under the two-class method for a master limited partnership, net income (or loss) for the current reporting period shall be reduced (or increased) by the amount of available cash that has been or will be distributed to the general partner, limited partners, and incentive distribution right holder for that reporting period. For example, assume a partnership agreement requires the general partner to distribute available cash within 60 days following the end of each fiscal quarter. The master limited partnership is required to file financial statements with a regulatory agency within 45 days following the end of each fiscal quarter. In order to compute earnings per unit for the first quarter, the general partner determines the amount of available cash that will be distributed to the general partner, limited partners, and incentive distribution right holder for that first quarter. The master limited partnership would reduce (or increase) net income (or loss) by that amount in computing undistributed earnings that are allocated to the general partner, limited partners, and incentive distribution right holder in calculating earnings per unit for the first quarter. ##### [260-10-55-104](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-104) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:8c9000381408533f4485fbe14ae83d56394cfbde58d2a8ae7109220f3fecf856 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Undistributed earnings shall be allocated to the general partner, limited partners, and incentive distribution right holder utilizing the contractual terms of the partnership agreement. The distribution waterfall (that is, a schedule that prescribes distributions to the various interest holders at each threshold) for available cash specified in the partnership agreement contractually mandates the way in which earnings are distributed for the period presented. The undistributed earnings shall be allocated to the incentive distribution right holder based on the contractual participation rights of the incentive distribution right to share in current period earnings. Therefore, if the partnership agreement includes a specified threshold as described in paragraph [260-10-55-30](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-30), a master limited partnership shall not allocate undistributed earnings to the incentive distribution right holder once the specified threshold has been met. ##### [260-10-55-105](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-105) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:a94d0983ffe5d10339aa231848c283e3d2fa64a652ac6648bd8fd88bc89aa6e9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In determining whether a specified threshold exists, a master limited partnership shall evaluate whether distributions to the incentive distribution right holder would be contractually limited to available cash as defined in the partnership agreement if all earnings for the period were distributed. For example, if the partnership agreement contractually limits distributions to the incentive distribution right holder to the holder's share of available cash as defined in the partnership agreement, then the specified threshold for the current reporting period would be the holder's share of available cash that has been or will be distributed for that reporting period. The master limited partnership would not allocate undistributed earnings to the incentive distribution right holder because the holder's share of available cash is the maximum amount that the incentive distribution right holder would be contractually entitled to receive if all earnings for the current reporting period were distributed. However, if the partnership agreement is silent or does not explicitly limit distributions to the incentive distribution right holder to available cash, then the master limited partnership would allocate undistributed earnings to the incentive distribution right holder utilizing the distribution waterfall for available cash specified in the partnership agreement. ##### [260-10-55-106](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-106) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:d084c53c5e01f962ccdda412fbd3f137c1dea70c07cce2f4cb521b7cd9d5686c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Any excess of distributions over earnings shall be allocated to the general partner and limited partners based on their respective sharing of losses specified in the partnership agreement (that is, the provisions for allocation of losses to the partners' capital accounts for the period presented). If the incentive distribution right holders do not share in losses, the excess of distribution over earnings amount would not be allocated to the incentive distribution right holders. However, if the incentive distribution right holders have a contractual obligation to share in the losses of the master limited partnership on a basis that is objectively determinable (as described in paragraph [260-10-45-68](https://asc.understandingaccounting.org/asc/260/10/#260-10-45-68)), the excess of distributions over earnings shall be allocated to the general partner, limited partners, and incentive distribution right holders based on their respective sharing of losses specified in the partnership agreement for the period presented. ##### [260-10-55-107](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-107) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:3f5f973d0a19e466b10eb70ab523ca2a011145a39a70398de914fa5fedbf02ef Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. When calculating earnings per unit under the two-class method for a master limited partnership, net income (or loss) for the current reporting period shall be reduced (or increased) by the amount of available cash that has been or will be distributed to the general partner (including the distribution rights of the embedded incentive distribution rights) and limited partners for that reporting period. For example, assume that a partnership agreement requires the general partner to distribute available cash within 60 days following the end of each fiscal quarter. The master limited partnership is required to file financial statements with a regulatory agency within 45 days following the end of each fiscal quarter. In order to compute earnings per unit for the first quarter, the general partner determines the amount of available cash that will be distributed to the general partner and limited partners for that first quarter. The master limited partnership would reduce (or increase) net income (or loss) by that amount in computing undistributed earnings that are allocated to the general partner (including the distribution rights of the embedded incentive distribution rights) and limited partners in calculating earnings per unit for the first quarter. ##### [260-10-55-108](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-108) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:f361ae13ccd2944ad730dd99d30dd06e4a07a39727b2bec067ec82577e8dbd35 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Undistributed earnings shall be allocated to the general partner (including the distribution rights of the embedded incentive distribution rights) and limited partners utilizing the contractual terms of the partnership agreement. The distribution waterfall for available cash specified in the partnership agreement contractually mandates the way in which earnings are distributed for the period presented. The undistributed earnings shall be allocated to the general partner (with respect to the distribution rights of an embedded incentive distribution right) based on the contractual participation rights of the incentive distribution right to share in current period earnings. Therefore, if the partnership agreement includes a specified threshold as described in paragraph [260-10-55-30](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-30), a master limited partnership shall not allocate undistributed earnings to the general partner (with respect to the distribution rights of an embedded incentive distribution right) once the specified threshold has been met. ##### [260-10-55-109](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-109) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:873e14b8d25a5c8234cb88a1dee7e4f42b40626e68856a4ceeedeab9df53a2e9 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. In determining whether a specified threshold exists, a master limited partnership shall evaluate whether distributions to the general partner (with respect to the distribution rights of an embedded incentive distribution right) would be contractually limited to available cash as defined in the partnership agreement if all earnings for the period were distributed. For example, if the partnership agreement contractually limits distributions to the general partner (with respect to the distribution rights of an embedded incentive distribution right) to the holder's share of available cash as defined in the partnership agreement, then the specified threshold for the current reporting period would be the general partner's share (with respect to the distribution rights of an embedded incentive distribution right) of available cash that has been or will be distributed for that reporting period. The master limited partnership would not allocate undistributed earnings to the general partner (with respect to the distribution rights of an embedded incentive distribution right) because the general partner's share (with respect to the distribution rights of an embedded incentive distribution right) of available cash is the maximum amount that the general partner (with respect to the distribution rights of an embedded incentive distribution right) would be contractually entitled to receive if all earnings for the current reporting period were distributed. However, if the partnership agreement is silent or does not explicitly limit distributions to the general partner (with respect to the distribution rights of an embedded incentive distribution right) to available cash, then the master limited partnership would allocate undistributed earnings to the general partner (with respect to the distribution rights of an embedded incentive distribution right) utilizing the distribution waterfall for available cash specified in the partnership agreement. ##### [260-10-55-110](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-110) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:884ac3823b67ac226e07b1b470e42b55f40d0fe06f76b15b080905c92b94c49c Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Any excess of distributions over earnings shall be allocated to the general partner and limited partners based on their respective sharing of losses specified in the partnership agreement for the period presented. ##### [260-10-55-111](https://asc.understandingaccounting.org/asc/260/10/#260-10-55-111) Pending content: no Source downloaded (UTC): 2026-09-09T23:19:12.977Z to 2026-09-09T23:19:12.977Z Record version: sha256:fa5383a398c63307fce6881599e3fbd40df387725ae723ed2da4ee8f1e3fe6b8 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A general partner may transfer net assets to a master limited partnership as part of a [dropdown](https://asc.understandingaccounting.org/glossary/d/#dropdown "A transfer of certain net assets from a sponsor or general partner to a master limited partnership in exchange for consideration.") transaction that occurs after formation of the master limited partnership. If the master limited partnership accounts for the dropdown transaction under the Transactions Between Entities Under Common Control Subsections of Subtopic 805-50, in calculating the historical earnings per unit under the two-class method, the earnings (losses) of the transferred net assets before the date of the dropdown transaction should be allocated entirely to the general partner. In that circumstance, the previously reported earnings per unit of the limited partners for periods before the date of the dropdown transaction should not change as a result of the dropdown transaction.