Exam 5: Earnings Per Share

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.

Calculate the incremental EPS for the following instrument:

Which statement is correct?

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

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

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?

Explain the "income effect" and "share effect" as they apply to the calculation of incremental EPS.

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

Which statement is correct about earnings per share (EPS)?

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

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

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

Calculate the incremental EPS for the following instrument:

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.On December 15,2018,Harvest declared $10,000 in dividends on the non-cumulative preferred shares,payable on January 15,2019.Dividends on the cumulative preferred shares are neither declared nor paid. Required: Determine the net income available to ordinary shareholders for the year ended December 31,2018.

Which statement is correct?

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.Both the preferred shares series A and B are cumulative in nature.Series A must be fully paid their current entitlement as well as any arrears before any monies are paid to the Series B shareholders. Required: Compute basic EPS.

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.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.

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

Summer Surprise Ltd.(SSL)was incorporated on January 1,2018.At that time,it issued 210,000 ordinary shares; 95,000,$65,2% preferred shares "A"; and 85,000,$65,4% preferred shares "B." Net income for the year ended December 31,2018 was $500,000.SSL neither declares nor pays dividends during the year.Both the preferred shares series A and B are cumulative in nature.Series A must be fully paid their current entitlement as well as any arrears before any monies are paid to the Series B shareholders. Required: Compute basic BPS.

Which statement is correct?