MGMT 131B Chapter Notes - Chapter 16: Debits And Credits, Treasury Stock, Valuation Of Options
Document Summary
Transactions that occurred => affect basic eps (as well as dilutive eps) Issue/purchase stock: affect weighted-number of shares from the date of transaction. Stock split/dividend: affect number of shares as if the split/stock dividend occurred at ipo. Transactions (conversion specifically) that didn"t occur but dilutive if converted => affect dilutive eps only. Assumes the conversion at the beginning of the period (or at the time of issuance of the security, if issued during the period) Treasury stock method: assume: exercising the options or warrants at the beginning of the year (or date of issue if later), and, that the company uses those proceeds to purchase common stock for the treasury. Dilutive eps : = * exercise price/ average stock price over the year. Recognition: total compensation expense = fair value of the option at the date of grant. Estimated by comparing strike/exercise price with stock price at the date of grant, based on a sophisticated option pricing model.
