When applying the treasury stock method for diluted earnings per share, the market price of the common stock used for the repurchase is the
A) price at the end of the year.
B) average market price.
C) price at the beginning of the year.
D) none of these.

Question

Quizplus · Accepted Answer

The treasury stock method for calculating diluted earnings per share uses the average market price of the common stock for the period when determining how many shares could be bought back with the proceeds from the exercise of options or warrants. This method assumes that the funds received from the exercise of options or warrants are used to buy back shares at the average market price, thus minimizing the impact on the EPS calculation.

When Applying the Treasury Stock Method for Diluted Earnings Per