Exam 5: Earnings Per Share

The net income for Cedarsprings Retreat Centre for the year ended December 31, 2020, was $800,000. Cedarsprings had 50,000 ordinary shares outstanding at the beginning of the year. Cedarsprings declared and distributed a three-for-one stock split on May 1, 2020 and issued (sold)30,000 ordinary shares on November 1, 2020. Select details of Cedarsprings' liabilities and equities follow: Bonds A-$2,000,000, 6%, 10-year, semi-annual bonds issued on July 1, 2020. At the option of the holder, each $1,000 bond can be converted into 14 ordinary shares at any time before expiry. Bonds B-$2,000,000, 5%, semi-annual bonds maturing September 30, 2024. The owners of the bonds elect to convert them into 12,000 ordinary shares on December 1, 2020. 200,000 cumulative preferred shares that are each entitled to dividends of $2.00 per annum. Dividends are not declared in 2020. Cedarsprings' corporate tax rate was 40%. The recorded conversion factor for the convertible bonds has already been adjusted for the stock split. Required: Assuming that the effective rate of interest on the bonds equals the coupon rate: a)Calculate Cedarsprings' basic earnings per share for 2020. b)Prepare a schedule that sets out the income effect, share effect, and incremental EPS for each security that is convertible into ordinary shares. Rank the potential ordinary shares by their dilutiveness. c)Calculate Cedarsprings' diluted earnings per share for 2020.

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

What is the meaning of an "in the money call option"?

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, 2019 Maturity date December 31, 2024 Conversion rate for each $1,000 bond 20 ordinary shares Tax rate 25%

Describe the procedure for identifying dilutive and antidilutive potential ordinary shares and calculating diluted EPS.

What is the meaning of "net income attributable to ordinary shareholders"?

Explain the difference between basic and diluted EPS.

Which statement is correct?

Which statement is correct about "weighted average number of ordinary shares outstanding"?

For the year ended December 31, 2022, Harvest Productions Inc. earned $4,000,000. Outstanding preferred shares included $400,000 in 3% cumulative preferred shares issued on January 1, 2021 and $500,000 in 2% non-cumulative preferred shares issued on January 1, 2022. Dividends on the cumulative preferred shares were not declared in 2021. On December 15, 2022, 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. Required: Determine the net income available to ordinary shareholders for the year ended December 31, 2022.

What is the meaning of "net income attributable to ordinary shareholders"?

Explain why private companies are not required to report EPS under according to ASPE.

Accu Tech Renovations Corp. (ATRC)was incorporated on January 1, 2021. At that time it issued 100,000 ordinary shares; 80,000, $20, 3% preferred shares "A"; and 40,000, $20, 6% preferred shares "B." Net income for the year ended December 31, 2021 was $1,800,000. ATRC declares and pays total of $238,000 in dividends. Both the preferred shares series A and B are non-cumulative in nature. Series A must be fully paid their current entitlement before any monies are paid to the Series B shareholders. Required: Compute basic EPS.

Which statement is correct about basic EPS?

a. What is the treasury stock method and when is it used? b. Briefly describe the application of the treasury stock method. c. What does the treasury stock method assume about the exercise date? What is the exception to the rule with respect to the assumed exercise date? What alternative procedure is employed in this instance?

What is the formula for diluted EPS? What are dilutive and antidilutive potential ordinary shares and how do they each impact the computation of dilutes EPS?

Calculate the income effect on the incremental EPS for the following instrument: Convertible bonds outstanding, yield of 6% and coupon rate of 6% $2,000,000 Issue date January 1, 2021 Maturity date December 31, 2028 Conversion rate for each $1,000 bond 20 ordinary shares Income tax rate 25%

Which of the following are financial instruments that give rise to POS?

Which statement is correct?