Exam 15: Earnings Per Share

Two different companies have many similarities,including the following: • They all earned net income of $3,500,000 for the year ended December 31,2017; • They are all subject to a 35% tax rate; • The average price of the companies' ordinary shares during the year was $26; and • Each company had 1,400,000 ordinary shares outstanding during the year. They do have slightly different complex capital structures,however.Specifically: • Company Black had stock options outstanding the entire year that allowed employees to buy 10,000 ordinary shares for $22 each between January 1,2018 and December 31,2019. • Company Clark had $4,000,000 in 4% non-cumulative preferred shares outstanding the entire year.Each $100 share is convertible into three ordinary shares.Dividends were not declared in 2017. Requirements: a.Calculate the basic EPS of the four companies. b.Prepare a schedule that sets out the income effect,share effect,and incremental EPS for each company's security that is convertible into ordinary shares. c.Consider each company's POS and determine whether it is dilutive or anti-dilutive.

Use the following information to calculate the "net income available to ordinary shareholders": Net income 4,000,000 Dividends on cumulative preferred shares 40,000 Dividends on non-cumulative preferred shares 100,000 Dividends declared in 2013: - Common shares 50,000 - Cumulative preferred shares 80,000 - Non-cumulative preferred shares 0 Dividends paid in 2013: - Common shares 30,000 - Cumulative preferred shares 50,000 - Non-cumulative preferred shares 0

Which statement is correct about the "weighted average number of ordinary shares outstanding" (WASO)?

Calculate the incremental EPS for the following instrument: Face value of 10,000 preferred shares with dividend rate of 5\% \ 1,000,000 Conversion rate for each preferred share 25 ordinary shares Income tax rate 30\%

Which statement is correct about the "weighted average number of ordinary shares outstanding" (WASO)?

Which statement is correct?

Calculate the incremental EPS for the following instrument: Convertible bonds outstanding, yield of 5\% and coupon rate of 5\% \ 2,000,000 Issue date January 1,2013 Maturity date December 31,2018 Conversion rate for each \ 1,000 bond 20 ordinary shares

Which statement is correct?

Explain how the dividends on cumulative preferred shares are adjusted in the EPS calculation.What is the underlying logic for this adjustment?

Explain why only in-the-money options need be considered in the diluted EPS calculations.

In 2014,TC Mulch Inc.'s net income was $200,000.Mulch had 220,000 ordinary shares outstanding at year end.There were two ordinary share transactions during the year: i)Mulch declared and distributed a 4-for-1 stock split on March 1,2014; and ii)Option C was exercised on April 1,2014.Details of Mulch's stock option plans follow: • Option A entitles employees to purchase 40,000 ordinary shares for $9.00 each.This option was granted during 2013 and expires in 2016. • Option B entitles employees to purchase 40,000 ordinary shares for $21.00 each.This option was granted on July 1,2014 and expires in 2017. • Option C entitles employees to purchase 40,000 ordinary shares for $13.00 each.This option was granted during 2012 and was exercised on April 1,2014. • Option D entitles employees to purchase 40,000 ordinary shares for $17.00 each.This option was granted on September 1,2014 and expires in 2017. The average market price of Mulch's ordinary shares for the year is $18.00.Mulch does not have any preferred shares or convertible bonds outstanding.The recorded exercise prices and number of shares that can be acquired under the stock option plans have already been adjusted for the stock split. Requirements: a.Calculate Mulch's basic earnings per share for the year ended December 31,2014. b.Calculate Mulch's diluted earnings per share for the year ended December 31,2014.

For the year ended December 31,2011,Harvest Productions Inc.earned $4,000,000.Outstanding preferred shares included $400,000 in 3% cumulative preferred shares issued on January 1,2010 and $500,000 in 2% non-cumulative preferred shares issued on January 1,2011.Dividends on the cumulative preferred shares were not declared in 2010.On December 15,2011,Harvest declared and paid $24,000 in dividends on the 3% cumulative shares including the arrears.Harvest also declared and paid the $10,000 dividends on the non-cumulative shares. Requirement: Determine the net income available to ordinary shareholders for the year ended December 31,2011.

Which statement is correct?

Calculate the income effect on the incremental EPS for the following instrument: Convertible bonds outstanding, yield of 8\% and coupon rate of 8\% \ 5,000,000 Issue date January 1,2015 Maturity date December 31,2022 Conversion rate for each \ 1,000 bond 25 ordinary shares Income tax rate 30\%

Traditional Bathrooms Inc.(TBI)had 80,000 ordinary shares outstanding on January 1,2015.Transactions throughout 2015 affecting its shareholdings follow. • February 1: TBI issued 200,000,$10,cumulative 10% preferred shares. • March 1: TBI issued 40,000 ordinary shares. • April l: TBI declared and issued a 8% stock dividend on the ordinary shares. • July 1: TBI repurchased and cancelled 30,000 ordinary shares. • October 1: TBI declared and issued a 3-for-l stock split on the ordinary shares. • December 31: TBI declared and paid $99,600 in dividends on the ordinary shares. • Net income for the year ended December 31,2015 was $600,000.Its tax rate was 40%. Requirements: a.What was weighted average number of ordinary shares outstanding in 2015? b.What was basic EPS in 20151 c.If the preferred shares issued on February 1,2015 were non-cumulative,what would basic BPS for 2015 have been?

For the year ended December 31,2015,Jovial Productions Inc.earned $13,000,000.Outstanding preferred shares included $1,500,000 in 9% cumulative preferred shares issued on January 1,2012 and 32,000 $160 non-cumulative preferred shares issued on January 1,2014 that are each entitled to dividends of $7 per annum.Dividends were neither declared nor paid on either class of the preferred shares in 2013 or 2014.On December 15,2015,the company declared $150,000 dividends on the 4% cumulative preferred shares and $150,000 in dividends on the non-cumulative preferred shares,both payable on January 15,2016. Requirement: Determine the net income available to ordinary shareholders for the year ended December 31,2015.

Which statement is correct?

Hamm Corporation had 200,000 ordinary shares outstanding on January 1,2011.On April 1,2011,Hamm issued an additional 120,000 shares.On July 1,2011,Hamm repurchased 20,000 ordinary shares and cancelled them.On October 1,2011,Hamm issued an additional 50,000 ordinary shares. Requirements: a.What was the weighted average number of ordinary shares outstanding in 2011 ? b.Assume that on July 1,2011 Hamm repurchased the shares and held them as treasury shares.Will the weighted average number of ordinary shares outstanding in 2011 change from the amount in part a? Why or why not?

Tropical Island Inc.(TIl)was incorporated on January I,2014.At that time it issued 300,000 ordinary shares; 10,000,$10,8% preferred shares "A"; and 100,000,$10,9% preferred shares "B." Net income for the year ended December 31,2014 was $1,600,000.TIl declares and pays a total of $68,000 in dividends.The series A preferred shares are cumulative and the series B preferred shares are non-cumulative.Series A must be fully paid their current entitlement before any monies are paid to the Series B shareholders. Requirement: Compute basic BPS.

Use the following information to calculate the "net income available to ordinary shareholders": Net income 1,000,000 Dividends on cumulative preferred shares 40,000 Dividends on non-cumulative preferred shares 100,000 Dividends declared in 2013: - Common shares 50,000 - Cumulative preferred shares 80,000 - Non-cumulative preferred shares 0 Dividends paid in 2013: - Common shares 30,000 - Cumulative preferred shares 50,000 - Non-cumulative preferred shares 0