Which of the following concerning the treasury stock method is true?

A. The number of shares used for the earnings per share adjustment is usually equal to the number of actual shares exercised.
B. The assumption of exercise in the treasury stock method is not realistic.
C. Changes in market price do not affect the value of the conversion feature.
D. The conversion or dilution will always occur.

Correct Answer: B

The assumption of the exercise is not very realistic, as it may not ever occur, due to changes in market price, and it is rarely at the amount used for the adjustment.