Chapter 15 Earnings per share Problem 3&4 PDF

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PROBLEM 3:EXERCISES1. Solution:  [4M - (2M x 10%)] ÷ 100,000 sh. = 382. Solution:  Basic EPS = [15M – (5M x 10%)] ÷ [(30M ÷ 100par) – 50K treasury sh.] Basic EPS = 58.3. Solution: Jan. 1, 20x3 (1,000,000 x 120% x 2 x 12/12) 2,400, (a) (200,000 x 120% x 2 x 11/12) 440, (b) - (c) (60,000 x 2 x 7/12)...

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PROBLEM 3: EXERCISES 1. Solution:  [4M - (2M x 10%)] ÷ 100,000 sh. = 38

2. Solution:  Basic EPS = [15M – (5M x 10%)] ÷ [(30M ÷ 100par) – 50K treasury sh.] Basic EPS = 58.00

3. Solution: Jan. 1, 20x3 (1,000,000 x 120% x 2 x 12/12) (a) (200,000 x 120% x 2 x 11/12) (b) (c) (60,000 x 2 x 7/12) (d) (-75,000 x 2 x 4/12) (e) Weighted average outstanding shares

2,400,000 440,000 70,000 (50,000) 2,860,000

4. Solution: Jan. 1, 20x3 (500,000 x 110% x 2 x 12/12) (a) (180,000 x 110% x 2 x 10/12) (b) (c) (200,000 x 2 x 6/12) (d) (e) (f) (-60,000 x 1/12) Weighted average outstanding shares

1,100,000 330,000 200,000 (5,000) 1,625,000

5. Solution: Profit Weighted ave. outs. Sh. (200,000 x 3 x 12/12) - (30,000 x 3 x 9/12) (200,000 x 3 x 12/12) Basic EPS

20x2 350,000

20x1 410,000

532,500 0.66

600,000 0.68

6. Solution: Profit Weighted ave. outstanding sh. (200,000 x 3*) Basic EPS * 200,000 + (200,000 x 2-for-1) = 600,000 7. Solution:  Basic EPS = 6,000,000 ÷ 350,000a = 17.14 o

a

2010 60,000,000 600,000 100.00

(300,000 x 160/150b x 3/12) + ( 360,000c x 9/12) = 350,000

2009 18,000,000 600,000 30.00

b

o

Theoretical value- right-on = (160 – 100) ÷ (5 + 1) = 10 Fair value – ex rt. = (160 – 10) = 150

o

c

300,000 + (300,000 ÷ 5) = 360,000

8. Solution:  Basic EPS = 5.5M ÷ 110,000 o

a

o

b

o

(100,000 x 16/15

b

= 50.00

x 9/12) + 120,000

c

x 3/12 = 110,000

Theoretical/ Parity value – rt. on = (16 – 10) ÷ (5 + 1) = 1 FV – ex rt. = (16 – 1) = 15 c

100,000 + (100,000 ÷ 5) = 120,000

9. Solution:  Basic EPS = 6M ÷ 350,000 o

a

o

b

o

a

(300,000 x 160/150

b

a

= 17.14

x 3/12) + 360,000

c

x 9/12 = 350,000

Theoretical/ Parity value – rt. on = (160 – 100) ÷ (5 + 1) = 10 FV – ex rt. = (160 – 10) = 150 c

300,000 + (300,000 ÷ 5) = 360,000

10. Solutions:  Requirement (1): BEPS

= (₱231,500 / 125,000) = ₱1.85 (rounded)

DEPS

= ₱231,500 / [125,000 + (8 x 7,500)] = ₱231,500 / 185,000 = ₱1.25 (rounded)



Requirement (2)

BEPS

= (₱231,500 - 30,000) / 125,000 = ₱1.61 (rounded)

DEPS

= ₱231,500 / (125,000 + 60,000) = ₱231,500 / 185,000 = ₱1.25 (rounded)

11. Solution: Diluted EPS

= (₱464,000 + ₱160,000 - ₱48,000) / (370,000 + 100,000) = ₱576,000 / 470,000 = ₱1.23 (rounded)

12. Solutions:

 Requirement (1): BEPS = ₱1,550,000 / [180,000 + (4/12 x 48,000)] = ₱1,550,000 / 196,000 = ₱7.91 (rounded) Conversion (600 bonds x 80) = 48,000 shares



 Requirement (2): DEPS = ₱1,550,000 + (₱144,000 x 0.7) / 196,000 + 128,000 = ₱1,650,800 / 324,000 = ₱5.10 Interest Avoided ₱1,200,000 x 9% x 12/12 = ₱ 600,000 x 9%  8/12 =

₱108,000 36,000 ₱144,000

Equivalent Shares 1,200 bonds x 12/12 x 80 = 600 bonds x 80 x 8/12 =

13. Solutions: (1) BEPS

(2) DEPS =

96,000 32,000 128,000

= ₱285,000 / 180,000 = ₱1.58 (rounded)

₱285,000 / {180,000 + [(15,000 - 12,000*) x 6/12} = ₱285,000 / 181,500 = ₱1.57 (rounded)

* (15,000 x ₱20 exercise price) = ₱300,000/₱25 ave. mkt. = 12,000 treasury shares PROBLEM 4: CLASSROOM ACTIVITY 1. Solution: The adjusted profit for Basic EPS: Profit after tax before adjustment for preferred dividends One-year cumulative preferred dividends (P1M x 6%) Adjusted profit Basic EPS is computed as follows: Basic EPS = 2,340,000 ÷ 200,000 Basic EPS = 11.70

2,400,000 ( 60,000) 2,340,000

2. Solutions: The weighted average number of outstanding shares: Date No. of shares Months outstanding (a) (b) Jan. 1 400,000 x 110% x 2 12/12 May 1 (24,000) x 2 8/12 June 1 120,000 x 2 7/12 Aug. 1 60,000 x 2 5/12 Dec. 1 12,000 1/12 Weighted average number of ordinary shares

Weighted average (c) = (a) x (b) 880,000 (32,000) 140,000 50,000 1,000 1,039,000

The basic EPS is: Basic EPS = Profit or loss less Preferred dividends ÷ Weighted average outstanding ordinary shares Basic EPS = 11,429,000 ÷ 519,500 Basic EPS = 22 3. Solutions:  Requirement (a): Basic earnings per share The adjusted profit for Basic EPS computation is determined as follows: Profit after tax before adjustment for preferred dividends 2,400,000 One-year cumulative preferred dividends (P1,000,000 x 6%) ( 60,000) Adjusted profit 2,340,000 Basic EPS is computed as follows: Basic EPS = 2,340,000 ÷ 200,000 Basic EPS = 11.70

 Requirement (b): Diluted earnings per share The denominator on the diluted EPS formula is computed as follows: Weighted average number of outstanding ordinary Shares 200,000 Incremental shares (50,000 x 2) 100,000 Denominator for diluted EPS computation 300,000 Diluted EPS is computed as follows: Diluted EPS = 2,400,000 ÷ 300,000 Diluted EPS = 8.00...