Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

12. Stockholders' Equity

Treasury Stock

Financial Accounting

12. Stockholders' Equity

Treasury Stock

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Multiple Choice

Under the treasury stock method, which of the following may be included in the proceeds from the assumed exercise of options or warrants?

Cash received from the exercise price of options or warrants

Interest income earned on cash balances

Proceeds from the sale of newly issued common stock unrelated to options or warrants

Tax benefits resulting from the exercise of nonqualified stock options

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Verified step by step guidance

Understand the treasury stock method: The treasury stock method is used to calculate the potential dilutive effect of options and warrants on earnings per share (EPS). It assumes that the proceeds from the exercise of options or warrants are used to repurchase shares at the average market price.

Identify the components of proceeds under the treasury stock method: The proceeds include cash received from the exercise price of options or warrants, and tax benefits resulting from the exercise of nonqualified stock options. These are directly related to the exercise of options or warrants.

Exclude unrelated items: Interest income earned on cash balances and proceeds from the sale of newly issued common stock unrelated to options or warrants are not included in the proceeds under the treasury stock method. These items are not directly tied to the exercise of options or warrants.

Focus on the correct inclusions: The treasury stock method specifically considers cash received from the exercise price and tax benefits resulting from the exercise of nonqualified stock options because these are directly linked to the exercise of options or warrants.

Apply the concept to EPS calculation: Once the proceeds are determined, they are used to calculate the number of shares that can be repurchased at the average market price, which helps determine the dilutive effect on EPS.