Exam 18: Earnings Per Share

The earnings per share figure is viewed by many users of financial statements as the single most important piece of information within the financial statements.A company's earnings and its earnings per share are the most commonly reported statistics reported about a company's yearly activities. Required: Briefly discuss the following issues: 1.If a convertible debenture exists, a.When is it considered in calculating earnings per share? Why? b.If including the effects of the debenture as if it were converted in the earnings per share,what calculations need to be made? 2.In applying the treasury stock method,why must the firm first use the funds to repurchase common shares for the treasury? 3.If a 10 percent stock dividend is issued halfway through the year,how many additional shares are added to the denominator of the earnings per share calculation? Does the answer change if the same number of shares are issued for cash? Why?

When computing dilutive EPS,the treasury stock method can be used for all of the following except

On January 2,2014,Wondrous Co.issued at par $50,000 of 4 percent bonds convertible,in total,into 5,000 shares of Wondrous's common stock.No bonds were converted during 2014.Throughout 2014 Wondrous had 5,000 shares of common stock outstanding.Wondrous' 2014 net income was $5,000.Wondrous' income tax rate is 40 percent.No potentially dilutive securities other than the convertible bonds were outstanding during 2014.Wondrous' diluted earnings per share for 2014 would be

Binary Controls Inc.had 250,000 shares of common stock outstanding at the end of 2012.During 2013 and 2014,the following transactions took place. Binary Controls Inc.has a simple capital structure. Compute the weighted average number of shares for 2013 and 2014 to be used in the earnings per share computation for comparative financial statements at the end of 2014.

Pueblo Corporation had 100 shares of common stock issued and outstanding at December 31,2013.On July 1,2014,Pueblo issued a 10 percent stock dividend.Unexercised stock options to purchase 20 shares of common stock (adjusted for the 2014 stock dividend)at $20 per share were outstanding at the beginning and end of 2014.The average market price of Pueblo's common stock (which was not affected by the stock dividend)was $25 per share during 2014.The ending market price was $40.Net income for the year ended December 31,2014,was $2,200. What was Pueblo's 2014 basic earnings per share,rounded to the nearest cent?

On December 31,2012,Bugler Travel Inc.had 450,000 shares of no-par common stock issued and outstanding.All shares were sold for $7.50.On June 30,2013,Bugler issued an additional 135,000 shares for $7 per share.The 2013 income was $319,200.On September 1,2012,a 15 percent stock dividend was issued to all common shareholders.On October 1,2014,60,000 shares were reacquired as treasury shares.Net income in 2014 was $278,063. (1)Compute the weighted-average number of common shares outstanding for 2013 and 2014 that should be shown on comparative statements at the end of 2014. (2)Compute the basic earnings per share in 2013 and 2014 to be reported on Bugler's comparative statements at the end of 2014.