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This note aims to address a significant oversight in teaching the computation of earnings per share (EPS) related to options and warrants.

Earnings Per Share: A Flow Approach to Teaching Concepts and Procedures: A Comment.

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A comment highlights complications in EPS calculations related to options and warrants, indicating potential errors in teaching methods.

This note aims to address a significant oversight in teaching the computation of earnings per share (EPS) related to options and warrants.
Review of the modified treasury stock method for options and warrants
Analysis of the 20 percent test for EPS calculations
Discussion of flow charts used in teaching EPS concepts
Identified omission of the importance of the 20 percent test in EPS calculations
Highlighted that combining options and warrants can impact the applicability of the treasury stock method
Indicated that failure to test these properly may lead to erroneous EPS results

William L. Stephens (1978) studied this question.

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