QUESTION 4

1. 2A

   What are the two formulas normally calculated only for common shares, and how and why are they used? (4 Marks)

   When and how is EPS used and presented? (2 marks)

   2B

   Weighted average of common shares outstanding

   At January 1, 2020, Elan Corporation had 300,000 common shares outstanding (no preferred issued). On March 1, the corporation issued 45,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2 for 1 stock split. On October 1, the corporation purchased on the open market 180,000 of its own shares at $ 35 each and retired them. (8 Marks)

   2C

   Basic and diluted earnings per share

   Throughout the calendar year 2020, Kali Corporation has 400,000 common shares outstanding (no preferred shares issued). In addition, Collie has 5,000, 20-year, 7% bonds outstanding, issued at par in 2018. Each $ 1,000 bond is convertible into 20 common shares after June 30, 2021. Collie reported net income of $ 600,000 for calendar 2020. Their income tax rate is 30%. (7 Marks)

   2D

   Earnings per share

   Define the following (4 marks)

   a) The calculation of earnings per share

   b) Complex capital structure

   c) Basic earnings per share

   d) Diluted earnings per share