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In Applying the Treasury Stock Method of Computing Diluted Earnings

question 75

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In applying the treasury stock method of computing diluted earnings per share,when is it appropriate to use the average market price of common stock during the year as the assumed repurchase price?


Definitions:

Market Price

Market price refers to the current price at which an asset or service can be bought or sold in a given market.

Convertible Bonds

Bonds that can be converted by the holder into a specified number of shares of the issuing company's stock.

Marginal Income Tax Rate

The rate at which the next dollar of taxable income would be taxed.

Net Income

The total earnings of a company after all expenses and taxes have been deducted from revenue.

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