Exam 5: Earnings Per Share

Calculate the incremental EPS for the following instrument:

Calculate the incremental EPS for the following instrument:

Which statement is correct?

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

Two different companies have many similarities,including the following: • They both earned net income of $3,500,000 for the year ended December 31,2017; • They are both 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. Required: a.Calculate the basic EPS of both 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 antidilutive.

Sad Man Inc.had 220,000 ordinary shares outstanding in all of 2016.On January 1,2014,Sad issued at par $400,000 in 10% bonds maturing on January 1,2022.Each $1,000 bond is convertible into 9 ordinary shares.Assume that the effective interest rate is 10%.There are 5,000 outstanding cumulative preferred shares that are each entitled to an annual dividend of $0.20.Dividends were not declared or paid during 2016.Each preferred share is convertible into three ordinary shares.Sad's net income for the year ended December 31,2016 was $250,000.Its income tax rate was 35%. Required: a.Calculate Sad's basic EPS for 2016. b.Are the convertible bonds dilutive or anti-dilutive in nature? The convertible preferred shares? c.Calculate Sad's diluted EPS for 2016.

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?

For the year ended December 31,2018,Jovial Productions Inc.earned $13,000,000.Outstanding preferred shares included $1,500,000 in 9% cumulative preferred shares issued on January 1,2015 and 32,000 $160 non-cumulative preferred shares issued on January 1,2017 that are each entitled to dividends of $7 per annum.Dividends were neither declared nor paid on either class of the preferred shares in 2016 or 2017.On December 15,2018,the company declared and paid the $270,000 dividends in arrears on the 9% cumulative preferred shares.The company also declared and paid $224,000 dividends on the non-cumulative preferred shares. Required: Determine the net income available to ordinary shareholders for the year ended December 31,2018.

Explain the difference between basic and diluted EPS.

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

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

Hamm Corporation had 200,000 ordinary shares outstanding on January 1,2018.On April 1,2018,Hamm issued an additional 120,000 shares.On July 1,2018,Hamm repurchased 20,000 ordinary shares and cancelled them.On October 1,2018,Hamm issued an additional 50,000 ordinary shares. Required: a.What was the weighted average number of ordinary shares outstanding in 2018? b.Assume that on July 1,2018 Hamm repurchased the shares and held them as treasury shares.Will the weighted average number of ordinary shares outstanding in 2016 change from the amount in part a? Why or why not?

Calculate the diluted EPS given the following information:

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

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

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

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

Ned Company reported the following information for its fiscal year: The preferred dividends listed above include the current year and prior accumulated dividends.What is the amount of net income available to common shareholders?

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

Calculate the incremental EPS for the following instrument: