Question 4: Diego Maradona of Napoli Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ended December 31, 2017. Maradona has gathered the following information.

1. 2.

3.

4. 5.

The company is authorized to issue 8 million common shares. As at December 31, 2016, 2 million shares had been issued and were outstanding.

The per share market prices of the common shares on selected dates were as follows:

I.

A total of 700,000 shares of an authorized 1.2 million convertible preferred shares had been issued on July 1, 2016. The shares were issued at $25 and have a cumulative dividend of $3 per share. The shares are convertible into common shares at the rate of one convertible preferred share for one common share. The rate of conversion is to be automatically adjusted for stock splits and stock dividends. Dividends are paid quarterly on September 30, December 31, March 31, and June 30.

Napoli Corporation is subject to a 30% income tax rate.

The after-tax net income for the year ended December 31, 2017 was $11,550,000. The following specific activities took place during 2017:

January 1: A 5% common stock dividend was issued. The dividend had been declared on

July 1, 2016 Jan. 1, 2017 Apr. 1, 2017 July 1, 2017 Aug. 1, 2017 Nov. 1, 2017 Dec. 31, 2017

Price per Share $20.00 21.00 25.00 11.00 10.50

9.00 10.00

December 1, 2016 to all shareholders of record on December 29, 2016.

II. April 1: A total of 400,000 shares of the $3 convertible preferred shares were converted into common shares. The company issued new common shares and retired the preferred shares.

This was the only conversion of the preferred shares during 2017.

III. July 1: A 2-for-1 split of the common shares became effective on this date. The board of

directors had authorized the split on June 1.

IV. August 1: A total of 300,000 common shares were issued to acquire a factory building.

V. November 1: A total of 24,000 common shares were purchased on the open market at $9 per share and cancelled.

VI. Cash dividends to common shareholders were declared and paid as follows: April 15: $0.30 per share

October 15: $0.20 per share

VII. Cash dividends to preferred shareholders were declared and paid as scheduled.

Calculate the basic and diluted Earnings Per Share values of Napoli Corporation for the year ended December 31, 2017. [12 Marks]