(EPS, Antidilution) Matt Kacskos, a stockholder of Howat Corporation, has asked you, the firm’s accountant, to explain why his stock warrants were not included in diluted EPS. In order to explain this situation, you must briefly explain what dilutive securities are, why they are included in the EPS calculation, and why some securities are antidilutive and thus not included in this calculation.

Instructions Write Mr. Kacskos a 1-1.5 page letter explaining why the warrants are not included in the calculation.

Use the following data to help you explain this situation.

Howat Corporation earned $228,000 during the period, when it had an average of 100,000 shares of common stock outstanding. The common stock sold at an average market price of $25 per share during the period. Also outstanding were 15,000 warrants that could be exercised to purchase one share of common stock at $30 per warrant.