1. The following data relate to XYZ Ltd. for the calendar year 2019:

Net income (30% tax rate)............................................................... $3,250,000

Average number of common shares

outstanding during 2019.............................................................. 1,200,000 shares

8%, cumulative convertible preferred shares:

convertible into 90,000 common shares................................... $1,800,000

6% convertible bonds; convertible into 60,000

common shares......................................................................... $2,000,000

Stock options, exercisable at $30 per share......................................... 105,000 shares

All the convertible securities and stock options were outstanding all year. The average market price of the common shares in 2019 was $35.

Instructions

Calculate: a. basic earnings per share b. diluted earnings per share

2. Presented below is the latest income statement of ABC Ltd.:

Sales............................................................................. $380,000

Cost of goods sold........................................................ 225,000

Gross profit.................................................................... $155,000

Operating expenses...................................................... 85,000

Income before income taxes......................................... 70,000

Income taxes................................................................. 28,000

Net income.................................................................... $ 42,000

In addition, the following information related to net changes in working capital is available:

Debit Credit

Cash.............................................................................. $12,000

Accounts receivable (net)............................................. 8,000

Inventories..................................................................... $19,400

Salaries payable (operating expenses)........................ 6,000

Accounts payable.......................................................... 9,000

Income tax payable....................................................... 3,000

ABC Ltd. also reports that depreciation expense for the year was $13,700 and that the deferred tax liability account increased $2,600.

Instructions

Prepare a schedule calculating the net cash flow from operating activities that would be shown on a statement of cash flows:

a) using the indirect method.

b) using the direct method.