‘AS 33, all entities are required to present ire information in their financial statements. igure in the calculation of earnings per share tax, share computation, reissued treasury shares duction to the number of outstanding shares ice date. \d splits require a retrospective restatement are information. ever exceed basic EPS. § per share is an example of a dilutive effect. onds exist, both the numerator and the d earnings per share Scanned with CamScannerighted-average number of ,a midyear event that must ing of the year is the dividend, Scanned with CamScanneringuish between companies with a complex capital cture and companies with a simple capital structure. w the maximum possible dilution of earnings. jominator in the calculation of diluted EPS is the iber of ordinary shares outstanding at year-end. ted average number of ordinary shares outstanding ted average number of ordinary shares outstanding plus weighted average number of all potential ordinary a F ted average number of ordinary shares outstanding weighted average number of all dilutive potential ary shares, ining earnings per share, interest expense, net of income taxes, on convertible debt which is dilutive | for diluted earnings per share. ck to the profit for diluted earnings per share, the profit for diluted earnings per share. ve. of computing diluted EPS assumes curities at the period reported (or at time of t period reported (regardless of eported (regardless of time orted (regardless of time Scanned with CamScannermethod” of computing for incremental h of the following? ¢. options and warrants feference shares all of these and 20x1, Gow Corp. had 100,000 000, 5%, P100 par value cumulative ing. No dividends were declared ~ or ordinary shares in 20x2 or 20x1, c. 9.00 d. 5.00 Shares issued and outstanding 200,000 ce shares 50,000 share dividend on its ash dividends on the d December 31, 20x7 rshare should be Scanned with CamScannerwhat is the number of shares Jet should use to calculate 20x) basic + amings per share? a. 40,000 b. 45,000 cc. 50,000 d. 54,000 uc) 4, Timp, Inc., had the following ordinary share balances and transactions during 20x8: 4 4/\/x8 Ordinary shares outstanding, 30,000 2/1/x8 Issued a 10% ordinary share dividend 3,000 ‘) 3/1/x8 Issued ordinary shares in a business combination 9,000 | 7/1/x8 Issued ordinary shares for cash . 8,000 12/31/x8 Ordinary shares outstanding 50,000 What was Timp’s 20x8 weighted average shares outstanding? a. 40,000 b. 44,250 c. 44,500 d. 46,000 (AICPA) 5. Rand, Inc., had 20,000 ordinary shares outstanding at January 1, 20x3. On May 1, 20x3, it issued 10,500 ordinary shares. Outstanding all year were 10,000’ shares of nonconvertible, noncumulative preference shares on which a dividend of P4 per share was paid in December 20x3. Profit for 20x3 was 96,700. Rand's basic earnings per share for 20x3 are a. 1.86 b. 2.10 ©, 2.84 d. 3.58 (AICPA) 6. ‘On December 31, 20x2, Preacher, Inc. had 500,000 ordinary shares outstanding. The following transactions occurred during 20x3: © Issued 180,000 shares to key employees as compensation for their past services to the company on February 28, 20x3. Issued a 10% dividend on March 31, 20x3. Issued 200,000 ordinary shares for cash on June 30, 20x3. Declared a 2-for-1 stock split on October 1, 20x3. Declared cash dividends of P5 per share on November 1, ae -_ —— Scanned with CamScanner: asury shares on December 1, 20x3. £ P10,075,000 in 20x3. Preacher's income yunt of basic earnings per share should reacher’s 20x3 statement of profit or c. 6.20 d.7.40 shares outstanding during 20x1. On acquired 30,000 shares, and. on \ds issued a 3-for-1 share split. Profits 410,000 and P350,000, respectively. nds report as basic earnings per omparative statements of profit or 20x2 20x1 0.72 0.64 d. 0.66 0.68 es a 1 for 10 rights issue at . The market value of the On 1 April 2015, the 1 per share. The before this rights 4.1034 Scanned with CamScanner9. On January 1, 2005, Michael Co. had 300,000 common ‘ag (ordinary) shares outstanding, P100 par or a total par value of 30,000,000. During 2005, Michael issued rights to acquire one common share at P100 in the ratio of one share for every 5 shares held. The rights are exercised on March 31, 2005. The market value of each, common share immediately prior to March 31, 2005 was P160. The net income (profit) for 2005 was 6,000,000. How much is the basic earnings per share in 2005. a. 6.02 b. 6.18 c. 17.08 d.17.14 | ¢Adapted) + 41. During 20x4, Moore Corp. had the following two classes of i stock issued and outstanding for the entire year. ¢ — 100,000 ordinary shares, P1 par. i ¢ 1,000, 4% preference shares, P100 par. Each convertible into one ordinary share. Moore's 20x4 profit was P900,000. The income tax rate was 30%. In the computation of diluted earnings per share, the amount to be used in the numerator is a. 896,000... 'b. 898,800. cc. 900,000. d. 901,200. (AICPA) 12. At December 31, 20x2, Lex, Inc. had 600,000 ordinary shares outstanding. On April 1, 20x3, an additional 180,000 ordinary shares were issued for cash. Lex also had P5,000,000 of 8% convertible bonds outstanding throughout the year, which are convertible into 150,000 ordinary shares. No bonds were issued or converted during 20x3. What is the number of shares that should be used in computing diluted earnings per share for 20x3? 5 a. 735,000 b. 780,000 c. 885,000 d. 930,000 (AICPA) 13. STATUTE LAW Co. had the followi 20x1 and 20x2: ital structure during Scanned with CamScannerConvertible preference shares, £20 par, 6% cumulative, 50,000 shares issued and outstanding P 1,000,000 Ordinary shares, P20 par, 200,000 shares issued and outstanding, 4,000,000 STATUTE reported profit after tax of P2,400,000 for the year ended December 31, 20x2. STATUTE paid P30,000 preferred dividends in 20x2; no preferred dividends were paid in 20x1. Each preference share is convertible into two ordinary shares. In its December 31, 20x2 statement of profit or loss, what amount should STATUTE report for the following? a.’ BasicEPS — Diluted EPS Basic EPS Diluted EPS a. 8.00 E80) c. 10.80 7.70 b. 11.70 0 d. 11.70 8.00 14. Dunn, Inc., had 200,000 shares of P20 par common stock (ordinary share) and 20,000 shares of P100 par, 6%, cumulative, convertible preferred stock (preference share) outstanding for the entire year ended December 31, 20x1. Each share is convertible into five shares of common stock. Dunn's net income (profit) for 20x1 was P840,000. For the year ended December 31, 20x1, the diluted earnings per share is a. 2.40. b. 2.80. c. 3.60. d. 4.20. (AICPA) “15. On January 2, 20x1, Lang Co, issued at par P10,000 of 4% bonds convertible in total into 1,000 ordinary shares. No bonds were converted during 20x1. Throughout 20x1, Lang had 1,000 ordinary shares outstanding; Lang's 20x1 profit was 1,000. Lang's income tax rate is 50%. No potentially dilutive securities other than the convertible bonds were outstanding during 20x1. Lang's diluted earnings per share for 20x1 would be 5 a. 1.00 b. 0.50 Gicea) i Scanned with CamScanner16. On June 30, 20x7, Lomond, Inc., issued twenty, P10,000, 7% bonds at par. Each bond was convertible into 200 ordinary shares. On January J, 20x8, 10,000 ordinary shares were outstanding. The bondholders converted all the bonds on July 1, 20x8. On the bonds’ issuance date, the average Aa corporate bond yield was 12%. During 20x8, the average Aa corporate pond yield was 9%, The following amounts were reported in Lomond’s income statement for the year ended December 31, 20x8: f Revenues 977,000 Operating expenses 920,000 Interest on bonds 7,000 Income before income tax 50,000 Income tax at 30% 15,000 Profit 35,000 ‘What amount should Lomond report as its 20x8 diluted earnings per share? 3 b. 2.85 ©. 2.92 d. 3.50 iny Saturday Co. has profit after tax of P3,600,000, weighted e utstanding ordinary shares of 280,000, and the employee stock options outstanding the entire year: 50,000 P80 P10 P120 P125 he following should Rainy report for the year? luted EPS Basic EPS . Diluted EPS c. 12.68 12.13 d. 12.00 11.73 Masters Inc. had outstanding 180,000 inary) stock. Net income (Profit) for ————————- = Scanned with CamScanner2003 was £285,000. Outstanding options (granted July 1, 2003) to purchase 15,000 shares of common stock at P20 per share had not been exercised by December 31, 2003. During 2003, market prices for the common stock were: July 1, 2003 "18 per share December 31, 2003 ° P32 per share Average 25 per share What amounts for the following should Masters Inc. report in 2003? BasicEPS Diluted EPS - BasicEPS Diluted EPS a. 1.58 1.56 . 1.68 1.55 b. 1.62 1.55 d. 1.58 1.57 119.-Party, Inc. had the following capital structure during 20x1: Convertible preference shares, P10 par, 6% cumulative, 50,000 shares issued and outstanding 500,000 Ordinary shares, #10 par, 200,000 shares issued and outstanding 2,000,000 Each preference share is convertible -into two ordinary shares, Party, Inc. reported loss of P900,000 in 20x1. What amounts of the following should Party, Inc. report in 20x1? Basic EPS DilutedEPS — Basic EPS Diluted EPS a. (4.35) (3.00) c. (4.35) 0 b. (4.65) (3.00) 3 d. (4.65) 0 20. Funhyzal Co. reported profit of P6,000,000 in 20x1 (net of 30% income tax). Funnyzal's capital structure all throughout 20x1 was as follows: Ordinary shares, 500,000 * Options, 40,000, with an exercise price of P100. The average market price during the year was P125. 10% convertible bonds with face amount of P2,000,000 and carrying amount of P1,903,927 on January 1, 20x1. The Scanned with CamScannereffective interest rate is 12%, Each P1,000 bond is convertible into 5 ordinary shares. « 8% convertible, cumulative, preference shares, P100 par value, 100,000. Each preference share is convertible into 2 ordinary shares. What amounts of basic and diluted EPS should Funnyzal report in jts 201 statement of profit or loss? Basic EPS Diluted EPS Basic EPS Diluted EPS a. 12.80 8.58 c. 10.40 8.47 b. 1040 ° 8.58 d. 9.80 7.76 PROBLEM 4: FOR CLASSROOM DISCUSSION Basic earnings per share 1, Hammer Co. ‘had the following capital structure during 20x1 - and 20x2: Preference shares, P10 par, 4% cumulative 250,000 Ordinary shares, P5 par 1,000,000 Hammer Teported profit of P500,000 for the year ended December 31, 20x2. Hammer paid no preferred dividends during 20x1 and paid 16,000 in preferred dividends during 20x2. Requirement: Compute for the basic EPS to be presented on the face of Hammer Co.’s 20x2 statement of profit or loss. (Adapted) Weighted average number of ordinary shares outstanding 2. On December 31, 2002, Superior, Inc. had 600,000 shares of common stock issued and outstanding. Superior issued a 10 percent stock dividend on July 1, 2003. On October 1, 2003, 26 ired 48,000 shares of its common stock and od of accounting for Scanned with CamScannerat number of shares should be used in computing per share for the year ended December 31, 2003? pany had one class of common stock (ordinary tanding and no other securities that are potentially ito common stock. During 2004, 100,000 shares of were outstanding. In 2005, two distributions 6f on shares occurred: On April 1, 20,000 shares were sold, and on July 1, a 2-for-1 stock split let income was P410,000 in 2005 and P350,000 in it amounts should Strauch report as basic hare in its 2005 and 2004 comparative statement? 20x1, Rough Co. had 400,000 ordinary shares. ‘20x1, Rough issued rights to acquire one in the ratio of one share for every 5 e exercised on September 30, 20x1. ary share immediately prior to Rough Co. reported profit of sic earnings per share in 20x1. ible preference shares inary shares with P20 par 6% cumulative, convertible ar the entire year ended share is convertible into 5 per share in 2009. Scanned with CamScanneramings per share - Convertible bonds wuary 2, 2002, Worley Co. issued at par P50, 000 of 4 bonds convertible, in total, into 5,000 shares of common stock. No bonds were converted during oughout 2002 Worley had 5,000 shares of common tstanding. Worley's 2002 net income was P500,000. income tax rate is 40 percent. No potentially dilutive other than the convertible bonds were outstanding mpute for the diluted earnings per share in 2002. igs per share - Options 0. has the following information: eyear 15,000,000 es, P100 par, 500,000 shares 50,000,000 options outstanding during the entire year: fs 50,000 P20 P180 P250 P400 diluted earnings per share. in ordinary shares or cash - 12%, P1,000,000 face amount, 0. The bonds mature after 3 yery Dec. 31. At maturity, Tack nds in cash or convert them evailing interest rate on Jan. e conversion ‘ was Scanned with CamScanner10%. Tack Co. reported profit of P2,000,000 (net of 30% tax) and had 100,000 ordinary shares outstanding throughout 20x1. Requirement: Compute for the basic and diluted EPS. Loss per share 9, Bark Co. had the following capital structure during 20x1: Convertible preference shares, ?10 par, 6% cumulative, 500,000 shares issued and outstanding 5,000,000 Ordinary shares, ®10 par, 2,000,000 shares issued and outstanding 20,000,000 Each preference share is convertible into two ordinary shares, Entity A reported loss of P900,000 in 20x1. Question: What amount(s) of EPS should Bark Co. report in its December 31, 20x1 statement of profit or loss? Multiple potential ordinary shares 10. Webinar Co. reported profit of P5,000,000 in 20x1 (net of 30% income tax). Webinar’s capital structure included the following which were outstanding all throughout 20x1: ¢ Ordinary shares, 200,000 © 6% convertible, cumulative, preference shares, P100 par value, 100,000. Each preference share is convertible into 2 ordinary shares. ¢ Options, 50,000, with an exercise price of P200. The average market price during the year was P250. e 12% convertible bonds with face amount of P2,000,000 and "carrying amount of P2,099,474 on January 1, 20x1. The effective interest rate is-10%. Each P1,000 bond is convertible into 20 ordinary shares. _ Requirements: Compute for the basic and diluted EPS. Scanned with CamScanner