(CMA adapted, Dec 89 #8) On January 1, Year 1, Toga Corporation granted stock options to top management.The options were exercisable within 4 years from the date of grant only if the employee was still in Toga's employ.When computing year-end earnings per share at December 31, Year 1, Toga should

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When computing diluted earnings per share, all potentially dilutive securities, including stock options, should be included if they are dilutive. In this case, since the options are exercisable within 4 years and only if the employee is still in Toga's employ, they could potentially dilute earnings per share during that time period. Therefore, they should be included in diluted earnings per share if they are dilutive. Option A is incorrect since the options should be included in the calculation, not excluded. Option C is incorrect since options should be included if they are dilutive, not just if they are antidilutive. Option D is incorrect since the options are considered common stock equivalents, and option E is incorrect since recognizing the value of the options each year in the income statement would not accurately reflect their potential dilution of EPS.

(CMA Adapted, Dec 89 #8) on January 1, Year 1