Exam 15: Earnings Per Share

Which statement is correct about the "net income attributable to ordinary shareholders"?

Explain why other comprehensive income is excluded from the numerator of the EPS calculation.

Which statement is correct?

Calculate the share effect on the incremental EPS for the following instrument:

Calculate the income effect on the incremental EPS for the following instrument:

Use the following information to calculate the "net income available to ordinary shareholders":

What is the meaning of "at-the-money options"?

The net income for Harley's Equestrian Show Jumping Co.for the year ended December 31,2017 was $1,400,000.Harley had 30,000 ordinary shares outstanding at the beginning of the year.Harley declared and distributed a 3-for-1 stock split on May 1,2017 and issued (sold)40,000 ordinary shares on November 1,2017.Select details of Harley's liabilities and equities follow: ∙ Bonds A-$1,400,000,11%,10-year,semi-annual bonds issued on July 1,2017.At the option of the holder,each $1,000 bond can be converted into 20 ordinary shares at any time before expiry. ∙ Bonds B-$1,500,000,9%,semi-annual bonds maturing September 30,2021.The owners of the bonds elect to convert them into 25,500 ordinary shares on December 1,2017. ∙ 50,000 cumulative preferred shares that are each entitled to dividends of $20.00 per annum.Dividends are not declared in 2017. ∙ Harley's corporate tax rate was 30%.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 Harley's basic earnings per share for 2017. 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 Harley's diluted earnings per share for 2017.

Which statement is correct about the "income effect" on EPS?

Which statement is correct respecting the presentation of discontinued operations on EPS?

Tropical Island Inc.(TIl)was incorporated on January 1,2018.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 31,2018 was $1,600,000.TIl declares and pays a total of $68,000 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 BPS.

Which of the following is correct about the difference between basic earnings per share (EPS)and diluted earnings per share?

Micky and Donald Corp.was founded on January 1,2018.At that time it issued 120,000 ordinary shares and 20,000,$30,cumulative 5% preferred shares.Subsequent transactions affecting its shareholdings follow. 2018 ∙ September 1: Micky issued 300,000,$30,non-cumulative 6% preferred shares. ∙ December 1: Micky issued 80,000 ordinary shares. ∙ Dividends were not declared in 2018. 2019 ∙ February 1: Micky issued 30,000 ordinary shares. ∙ June 1: Micky repurchased 50,000 shares and held them as treasury shares. ∙ July 1: Micky declared and paid $45,000 in dividends on the cumulative preferred shares, $270,000 on the non-cumulative preferred shares,and $180,000 on the ordinary shares. ∙ September 1: Micky reissued (sold)the 50,000 shares held in treasury. ∙ October 1: Micky declared and issued a 3-for-l stock split on the ordinary shares. ∙ December 1: Micky declared and paid $15,000 in dividends on the cumulative preferred shares,$270,000 on the non-cumulative preferred shares,and $180,000 on the ordinary shares. ∙ Micky's net income for the year ended December 31,2019 was $2,000,000.Its tax rate was 30%. Required: a.What was Micky's weighted average number of ordinary shares outstanding in 2019? b.What was Micky's basic EPS in 2019?

For the year ended December 31,2018,Harvest Productions Inc.earned $4,000,000.Outstanding preferred shares included $400,000 in 3% cumulative preferred shares issued on January 1,2017 and $500,000 in 2% non-cumulative preferred shares issued on January 1,2018.Dividends on the cumulative preferred shares were not declared in 2017. Harvest did not declare any dividends during 2018. Required: Determine the net income available to ordinary shareholders for the year ended December 31,2018.

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

The net income for Cedarsprings Retreat Centre for the year ended December 31,2017,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 1,2017 and issued (sold)30,000 ordinary shares on November 1,2017.Select details of Cedarspings liabilities and equities follow: Bonds A-$2,000,000,6%,10-year,semi-annual bonds issued on July 1,2017.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 30,2021.The owners of the bonds elect to convert them into 12,000 ordinary shares on December 1,2017. 200,000 cumulative preferred shares that are each entitled to dividends of $2.00 per annum.Dividends are not declared in 2017.Cedarspring's 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 Cedarspring's basic earnings per share for 2017. 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 Cedarspring's diluted earnings per share for 2017.

Use the following information to calculate the "weighted average number of ordinary shares outstanding" (WASO)?

Explain the purpose of incremental EPS.

Know Your Rights Co.has three stock option plans outstanding on December 31,2017.They provide the holders with the following entitlements: ∙ Stock option A-The holders may purchase 55,000 ordinary shares at any time on or before December 31,2021 for $41 each. ∙ Stock option B-The holders may purchase 2,000 ordinary shares at any time on or before December 31,2018 for $47 each.From January 1,2019 to December 31,2021 the holders may purchase 7,000 ordinary shares for $52 each. ∙ Stock option C-The holders may purchase 12,000 ordinary shares at any time on or before December 31,2019 for $51 each. The average price of ordinary shares in 2017 was $50 and its basic EPS from continuing operations for the year was $1.01. Required: a.Which of the stock options are dilutive and which are antidilutive in 2017? What is the rule in this respect? b.Assuming that all three option plans have been in place the entire year,for each plan,determine the incremental number of shares,if any,that need to be considered for diluted EPS purposes. c.Assume that stock option A was issued on April 1,2017.Does this change your answer to part b? If so,what is the revised number of incremental shares for option A that need to be considered for diluted EPS purposes?

Accu Tech Renovations Corp.(ATRC)was incorporated on January 1,2018.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 31,2018 was $1,800,000.ATRC declares and pays total of $238,000 in dividends.The series A preferred shares arc 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. Required: Compute basic EPS.