When computing diluted earnings per share, stock options:
A)Are included if they are anti-dilutive.
B)Should be ignored.
C)Are included if they are dilutive.
D)Increase the numerator while not affecting the denominator.

Question

Quizplus · Accepted Answer

Stock options should be included in diluted earnings per share if they are dilutive, meaning they would decrease earnings per share if exercised. This is because if the options were exercised, more shares would be outstanding and the earnings would be spread over a larger number of shares, resulting in a lower earnings per share. Options that are anti-dilutive, or would increase earnings per share if exercised, are not included in the calculation.

When Computing Diluted Earnings Per Share, Stock Options