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ARTICLE · 04 MARCH 2013

On The Horizon - February 26, 2013

Grant Thornton LLP
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The two-class method is an earnings allocation formula that divides earnings between common stock and any participating securities to the extent that each security would share in earnings as though all earnings for the period had been distributed, even if all earnings might not be distributable for contractual or other reasons.

United StatesAccounting and Audit
Grant Thornton
Grant Thornton
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Current practice issue

Participating securities and the two-class method of computing EPS

The two-class method is an earnings allocation formula that divides earnings between common stock and any participating securities to the extent that each security would share in earnings as though all earnings for the period had been distributed, even if all earnings might not be distributable for contractual or other reasons.

Companies may have multiple classes of common stock with different dividend participation rights or may have securities that participate in undistributed earnings with common stock. Such instruments are considered "participating securities" under GAAP. Examples of participating securities include certain preferred shares, warrants, restricted stock units, employee stock options, master limited partnership interests, and other instruments, as long as they would share in undistributed earnings in their current form prior to exercise or settlement. An

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