Earnings per share

ASC 260-10 governs the computation, presentation, and disclosure of basic and diluted earnings per share (EPS) by entities with publicly traded common stock or potential common stock (or entities in registration). Basic EPS divides income available to common stockholders (income less preferred dividends) by the weighted-average common shares outstanding (260-10-45-10 through 45-11); diluted EPS adds all dilutive potential common shares using the treasury stock method for options/warrants, the reverse treasury stock method for written puts and forward purchases, and the if-converted method for convertible securities, never assuming antidilutive conversions (260-10-45-16 through 45-45). The subtopic also covers the two-class method for participating securities, contingently issuable shares, down round features, and master limited partnership earnings per unit.

ASC 505-20 governs how corporations (issuers) and shareholders (recipients) account for stock dividends and stock splits. The core rule is substance over form: a small issuance (generally less than 20–25% of previously outstanding shares) is a stock dividend requiring capitalization of retained earnings at the fair value of the shares issued, while a larger issuance that materially reduces the unit market price is a stock split in substance, requiring capitalization only to the extent of legal requirements. Recipients recognize no income; they simply reallocate the cost of previously held shares over the larger number of shares.

ASC 710-10 is the catch-all compensation subtopic for arrangements outside pensions/OPEB (715), postemployment benefits (712), and stock compensation (718). Its General Subsections require accrual of a liability for compensated absences when four conditions are met (services already rendered, rights vest or accumulate, payment probable, amount reasonably estimable), prescribe accrual of individual deferred compensation contracts over the service period to the full eligibility date at present value, and limit deferral of union-contract lump-sum payments. The Deferred Compensation—Rabbi Trusts Subsections classify trust-held employer stock as treasury stock and classify the deferred compensation obligation as equity or a liability depending on the plan's settlement and diversification features (Plans A–D).

ASC 718-40 governs the employer's (sponsor's) accounting for employee stock ownership plans (ESOPs), distinguishing leveraged from nonleveraged plans. For leveraged ESOPs, the employer records the ESOP's outside debt as its own debt, charges shares issued to the ESOP to a contra-equity account ("unearned ESOP shares"), and recognizes compensation cost at the fair value of shares as they are committed to be released; for nonleveraged ESOPs, compensation cost equals the contribution called for in the period. It also prescribes dividend treatment (allocated shares to retained earnings; unallocated shares as debt reduction or compensation cost), EPS treatment, termination accounting, and disclosures.

ASC 805-40 explains how to apply the acquisition method when the legal acquirer (the entity that issues equity, often a public shell) is the accounting acquiree and the legal subsidiary is the accounting acquirer — a reverse acquisition. The accounting acquiree must be a business, and all recognition and measurement principles of 805-10, 805-20 and 805-30 (including goodwill) apply, but consideration transferred is imputed as the number of shares the legal subsidiary would have had to issue to give the legal parent's owners their resulting ownership percentage (805-40-30-2). The consolidated statements are issued in the legal parent's name yet are a continuation of the legal subsidiary's financial statements, with the subsidiary's legal capital retroactively restated to the parent's equity structure (805-40-45-1 through 45-2).