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A rights issue whose exercise price at issuance is less than the fair value of the stock contains a bonus element that is similar to a stock dividend. If a rights issue contains such a bonus element and it is offered to all existing stockholders, the reporting entity should adjust basic and diluted EPS retroactively for the bonus element for all periods presented. If this occurs after the close of the period but before issuance of the financial statements, the per-share computations for those and any prior period financial statements presented are based on the new number of shares, reflecting the bonus element.
If the ability to exercise the rights issue is contingent on an event other than the passage of time (e.g., a change in control), the reporting entity need not consider the bonus element in the denominator of either basic or diluted EPS until such time as the contingency is resolved. See further discussion in ASC 260-10-55-13 and ASC 260-10-55-14.
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