2,000 employee stock options to purchase on share of common stock
Each at $5.The average market price of the common stock
For the year was $20.
What is the correct ordering (ranking)of the dilutive issues for determining their inclusion into diluted earnings per share?

Question

Quizplus · Accepted Answer

The correct ordering of the dilutive issues for determining their inclusion into diluted earnings per share is:
1. Options
2. Convertible bonds
3. Contingent shares
In this particular case, since the exercise price of the options is lower than the market price, they are considered dilutive and should be included in the calculation of diluted EPS. Therefore, the option is the first dilutive issue to be considered, followed by convertible bonds and contingent shares. Hence, the correct ordering is 3, 2, 1. Therefore, choice C is the best answer.

2,000 Employee Stock Options to Purchase on Share of Common