As the end of the fiscal year, a company reported the following selected accounts on its statement of financial position At December 31, 2020 Long term debt 5 convertible bonds payable $2,000,000 9 convertible bonds payable $3,000,000 Shareholders' equity $3 cumulative, no par value, preferred shares (100,000 shares authorized, 30,000 shares issued and outstanding) $1,750,000 Common shares, no par value (5,000,000 shares authorized, 1,060,000 shares issued and outstanding) $14,440,000 Additional information No dividends were declared in 2020 Net income was $1 35 million in 2020 There were 60,000 common shares issued on March 1, 2020 The rest were outstanding during the entire year Options, A Series , were granted written in 2018 that give the holder the right to purchase 50,000 common shares at $18 per share The average market price of the company's common shares during 2020 was $25 per share The options expire in 2027 and no options were exercised in 2020 Options, B Series , were granted written in 2019 that give the holder the right to purchase 80,000 common shares at $30 per share The average market price of the company's common shares during 2020 was $25 per share The options expire in 2028 and no options were exercised in 2020 The 5 bonds were issued in 2019 at face value The 9 bonds were issued in 2018, at face value Each bond has a face value of $1,000 and is convertible into 50 common shares The preferred shares were issued in 2018 The average income tax rate is 25 No bonds were converted during 2020 Instructions a Calculate basic earnings per share for 2020 given the information above Show your calculations and round to the nearest cent (1 mark) b Calculate diluted earnings per share for 2020 Round to the nearest cent For simplicity, ignore the requirement to record the debt and equity components of the bonds separately Use the step by step process in arriving at your answers Label each step as you proceed to the final answer (9 marks) c Calculate basic earnings per share for 2020 assuming that the company had a 2 for 1 stock split on July 1 Round to the nearest cent (1 mark) d Bonus question If the 5 bonds were converted on July 1, 2020, what would be the basic (1 mark)

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Posted on Aug 17, 2021

As the end of the fiscal year, a company reported the following selected accounts on its statement of financial position: At December 31, 2020 Long-term

As the end of the fiscal year, a company reported the following selected accounts on its statement of financial position:

At December 31, 2020

Long-term debt

5% convertible bonds payable $2,000,000
9% convertible bonds payable $3,000,000

Shareholders' equity

$3 cumulative, no par value, preferred shares (100,000 shares authorized, 30,000 shares issued and outstanding) $1,750,000
Common shares, no par value (5,000,000 shares authorized, 1,060,000 shares issued and outstanding) $14,440,000

Additional information:

No dividends were declared in 2020.
Net income was $1.35 million in 2020.
There were 60,000 common shares issued on March 1, 2020. The rest were outstanding during the entire year.
Options, "A-Series", were granted/written in 2018 that give the holder the right to purchase 50,000 common shares at $18 per share. The average market price of the company's common shares during 2020 was $25 per share. The options expire in 2027 and no options were exercised in 2020.
Options, "B-Series", were granted/written in 2019 that give the holder the right to purchase 80,000 common shares at $30 per share. The average market price of the company's common shares during 2020 was $25 per share. The options expire in 2028 and no options were exercised in 2020.
The 5% bonds were issued in 2019 at face value. The 9% bonds were issued in 2018, at face value. Each bond has a face value of $1,000 and is convertible into 50 common shares.
The preferred shares were issued in 2018.
The average income tax rate is 25%.
No bonds were converted during 2020.

Instructions

a. Calculate basic earnings per share for 2020 given the information above. Show your calculations and round to the nearest cent. (1 mark)

b. Calculate diluted earnings per share for 2020. Round to the nearest cent. For simplicity, ignore the requirement to record the debt and equity components of the bonds separately. Use the step by step process in arriving at your answers. Label each step as you proceed to the final answer. (9 marks)

c. Calculate basic earnings per share for 2020 assuming that the company had a 2-for-1 stock split on July 1. Round to the nearest cent. (1 mark)

d. Bonus question: If the 5% bonds were converted on July 1, 2020, what would be the basic (1 mark)