PRETEND you are living in the new $$Tech$-$Era$$ of great developments in electronic equipment and

space living. Colonies have sprung up on several planets and people engage in inter planetary travel on a

routine basis using highly innovative high speed vehicles such as iFly, iFlue, iVing, etc. You are

employed by a large accounting consultancy firm Gallactika Accountants. This morning, the partner

with whom you work, Mr$.$ Ayre SpazeMann, starts you off for the day by assigning you to a client, Jupp

Jellies, Inc., located somewhere on Jupiter. $$Why don$$t you fly to their office and settle some equity

related issues?$,$ she suggests. And so you don your thermo$-$dynamic space suit, grab the portable

breathing apparatus and jump into the office spacecraft headed for Jupiter. It should take you about $30$

minutes to reach your destination provided the traffic movement on Spaceway $1$ is operating smoothly.

The ride to Jupiter was however somewhat bumpy due to some bad astronomic conditions. It had

become even more tense when the screen flashed the news of a software glitch and the possibility of

abandoning the spacecraft. Fortunately Earth Control was able to resolve the issue quickly and

thereafter, all you could see were some pieces of debris from an earlier exploded satellite floating by

your window. You were beginning to wonder what would be the estimated cost of cleaning this debris

$($considered this as a great idea for a question on ARO on a future midterm examination you were

drafting for your accounting professor$)$ when you arrived at your destination.

Upon arrival, you met Ms$.$ Shaykin Jell, their Financial Accounting Manager for an initial information

gathering session before beginning your work. You should note that Jupp Jellies follows IFRS which

has been adopted by all planetary business communities. Ms$.$ Jell informs you that she would like you to

assist her in some of the more troubling issues remaining to be resolved. Following a quick snack of a

chocolate sundae and strawberry cookies, you went to work on the manager$$s problems.

The company had begun their calendar fiscal year of $2018$ with $799,000$ common shares issued and

outstanding. Ms$.$ Jell provided you with additional information on the company$$s equity and debt

transactions for the year.

L On February $1,$ it had issued $48,000$ shares; $840,000$ shares on May $1$ and $72,000$ shares on

September $1,$ respectively.

L Further on March $1,$ it had acquired $12,000$ shares from the market and had immediately

cancelled them.

L The company also had outstanding at the beginning of the year, $8\%$ convertible preferred shares

capitalized at $$1,560,000.$ The preferred shareholders were eligible to convert their shares into

$64,000$ common shares.

L Jupp Jellies had not declared any dividends for $2017$ or for $2018.$

L The company also reported convertible debt. These were bonds payable, issued at par on August

$1,2018,$ for $$15,000,000$ and paying interest annually at a $4\%$ rate. Each $$1,000$ par value bond

could be converted into $8$ common shares of the company.

L Companies at Jupiter are taxed at a flat rate of $35\%.$

L Upon inquiring further, Ms$.$ Jell told you about the two types of options which had been issued

in prior years and were outstanding as at the beginning of $2018.$ Put options had been issued to

employees which entitled holders to sell $358,000$ of the company$$s common shares to the

company for $$15\mathrm{.}00$ each. The company had also issued call options to the management team

which enabled them to buy $230,000$ common shares at $$19\mathrm{.}00$ each. Jupp Jellies$$ shares traded

at an annual average price of $$10\mathrm{.}00$ each. All options remained outstanding at the end of the

year.

L And finally, the company reported net income of $$4,022,400.$ There was nothing to report for

Discontinued Operations.

With your meeting having concluded, Ms$.$ Jell, almost apologetically, handed you a list of questions she

wanted you to resolve and insisted that you support your responses with clear detailed computations. She

did add that there would be other questions arising from related transactions which were to follow once

this one was resolved.

REQUIRED:

a$.$ Determine the weighted average number of shares to determine the basic earnings per share for

$2018.$

b$.$ Determine the basic earnings per share for $2018,$ assuming

$($i$)$ the preferred shares were cumulative.

$($ii$)$ the preferred shares were not cumulative $[$For This Question Only$].$

c$.$ Identify the potentially dilutive securities which could be included in the computation of diluted

earnings per share. Be sure to support your answer with detailed computations and rank these

securities where required.

d$.$ Determine the diluted earnings per share to be reported by the company in $2018$ assuming preferred

shares were cumulative.

e$.$ For this part only, assume that the net income of $$4,022,400$ was as stated above but included an

after$-$tax gain of $$1,235,200$ from discontinued operations. Assume the preferred shares were