4.10 Comprehensive Example

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4.10 Comprehensive Example

ASC 260-10-55-38 through 55-50 contain the following comprehensive example illustrating the calculation of diluted EPS:

ASC 260-10

Example 1: Computation of Basic and Diluted EPS and Income Statement Presentation

55-38 This Example illustrates the quarterly and annual computations of basic and diluted EPS in the year 20X1 for Entity A, which has a complex capital structure. The control number used in this Example (and in Example 2) is income from continuing operations. Paragraph 260-10-55-49 illustrates the presentation of basic and diluted EPS on the face of the income statement. The facts assumed are as follows:

Average market price of common stock. The average market prices of common stock for the calendar-year 20X1 were as follows.
The average market price of common stock from July 1 to September 1, 20X1 was $71.
Common stock. The number of shares of common stock outstanding at the beginning of 20X1 was 3,300,000. On March 1, 20X1, 100,000 shares of common stock were issued for cash.
Convertible debentures. In the last quarter of 20X0, 4 percent convertible debentures with a principal amount of $10,000,000 due in 20 years were sold for cash at $1,000 (par). Interest is payable semiannually on November 1 and May 1. Each $1,000 debenture is convertible into 20 shares of common stock. No debentures were converted in 20X0. The entire issue was converted on April 1, 20X1, because the issue was called by Entity A.
Convertible preferred stock. In the second quarter of 20X0, 600,000 shares of convertible preferred stock were issued for assets in a purchase transaction. The quarterly dividend on each share of that convertible preferred stock is $0.05, payable at the end of the quarter. Each share is convertible into one share of common stock. Holders of 500,000 shares of that convertible preferred stock converted their preferred stock into common stock on June 1, 20X1.
Warrants. Warrants to buy 500,000 shares of common stock at $60 per share for a period of 5 years were issued on January 1, 20X1. All outstanding warrants were exercised on September 1, 20X1.
Options. Options to buy 1,000,000 shares of common stock at $85 per share for a period of 10 years were issued on July 1, 20X1. No options were exercised during 20X1 because the exercise price of the options exceeded the market price of the common stock.
Tax rate. The tax rate was 40 percent for 20X1.

55-39 The following table illustrates the income (loss) from continuing operations.

55-40 The following tables illustrate calculation of basic EPS for the first quarter.

55-41 The following table illustrates calculation of diluted EPS for the first quarter.

55-42 The following tables illustrate calculation of basic EPS for the second quarter.

55-43 The following table illustrates calculation of diluted EPS for the second quarter.

55-44 The following tables illustrate calculation of basic EPS for the third quarter.

55-45 The following tables illustrate calculation of diluted EPS for the third quarter.

Note that the incremental shares from assumed conversions are included in computing the diluted per-share amounts for the discontinued operation and net loss even though they are antidilutive. This is because the control number (income from continuing operations, adjusted for preferred dividends) was income, not a loss. (See paragraphs 260-10-45-18 through 45-19.)

55-46 The following tables illustrate calculation of basic and diluted EPS for the fourth quarter.

Note that the incremental shares from assumed conversions are not included in computing the diluted per-share amounts for net loss because the control number (net loss adjusted for preferred dividends) was a loss, not income. (See paragraphs 260-10-45-18 through 45-19.)

55-47 The following tables illustrate calculation of basic EPS for the full year 20X1.

55-48 The following tables illustrate calculation of diluted EPS for the full year 20X1.

55-49 The following table illustrates how Entity A might present its EPS data on its income statement. Note that the per-share amount for the discontinued operation is not required to be shown on the face of the income statement.

55-50 The following table includes the quarterly and annual EPS data for Entity A. The purpose of this table is to illustrate that the sum of the four quarters’ EPS data will not necessarily equal the annual EPS data. This Subtopic does not require disclosure of this information.

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This publication provides comprehensive guidance; however, it does not address all possible fact patterns, and the guidance is subject to change. Consult a Deloitte & Touche LLP professional regarding your specific issues and questions.