Question

The calculation of diluted earnings per share assumes that stock options were exercised and that the proceeds were used to:A. Buy common stock as an investment.B. Retire preferred stock.C. Buy treasury stock.D. Increase net income.

Answer 1

Answer:

C. Buy Treasury Stock

Explanation:

The Treasury Stock Method of Calculating Diluted Earnings Per Share

This method is usually used by an organisation to determine the number of additional shares it can generate from options as well as outstanding in-the-money warrants. Once these new shares are acquired they are then used to calculate the organisation's diluted EPS

Specifically and in relations to the question, the outstanding warrants and options are used to repurchase stocks which are then converted into treasury stock. Hence, the answer that states that stock options are exercised and that the proceeds were used to buy treasury stock.