SECTION IV

Jaws Industries, Inc., [JII] has set up a list of questions pertaining to some its intended transactions. Each transaction is independent of the others (unless otherwise stated) and all transactions are to be dealt with under the application of IFRS rules. Be sure to round off all your answers to the nearest cent.

Part 1] On December 31, 2018, JII reported $10,000,000 of 6% bonds which remained outstanding throughout the year 2019. On that date, each $1,000 bond had 6 detachable stock warrants and each warrant allowed the warrant holders to buy one share of stock for $60. None of the warrants were exercised during the year. On June 15, the company had declared a 200% stock dividend [be sure to adjust for conversion factor and exercise price]. The average adjusted share price was $36 each during the year. The application of the treasury stock method in calculating diluted earnings per share will increase the income (numerator) and the weighted average number of outstanding shares (denominator) by

Select one:

a. $0 and 80,000 shares.

b. $720,000 and 120,000 shares.

c. $120,000 and 100,000 shares.

d. $120,000 and 120,000 shares.

e. $0 and 120,000 shares.

Part 2] JII held the five securities on January 1, 2019. These remained unchanged throughout the year. There were no equity related transactions during the year. Particulars about the basic EPS plus the incremental per share effect required for the calculation of diluted EPS is given for each of the five securities are listed below alphabetically as follows:

Adjusted Income ($) Shares

Basic EPS $4,340,000 1,000,000

Security Change In Income Change In Shares

Call Options $0 60,000

Convertible Bonds $420,000 105,000

Convertible Preferred Shares $160,000 120,000

Put Options $0 (8,000)

Warrants $0 200,000

List all securities in the order of potential dilutiveness and assign the appropriate rank for each security.

Select one:

a. Call Options [R1], Warrants [R1], Put Options [R1], Convertible Preferred Shares [R2], Convertible Bonds [R3] are all potentially dilutable securities; and none of the securities should be excluded.

b. Call Options, Warrants and Put Options should be excluded as they do not contribute to income; and Convertible Preferred Shares [R1] and Convertible Bonds [R2] are both potentially dilutable securities.

c. Call Options [R1], Put Options [R1], Warrants [R1], Convertible Bonds [R2], are all potentially dilutable securities; and Convertible Preferred Shares, being an equity component becomes anti-dilutive and is to be excluded.

d. Call Options [R1], Put Options [R1], Warrants [R1] and Convertible Preferred Shares [R2] are all potentially dilutable securities; and Convertible Bonds [R2] being a long-term debt is reported annually at fair market value becomes anti-dilutive and so is to be excluded.

e. Call Options [R1], Warrants [R1], Convertible Preferred Shares [R2], Convertible Bonds [R3] are all potentially dilutable securities; and Put Options, being anti-dilutive are to be excluded.

Part 3] Use the information in [32] above to determine the diluted EPS and identify if any of the securities, are excluded from the computation. [Round your final answers to the nearest cent].

Select one:

a. The diluted EPS is $3.77 . The three options are to be excluded as IFRS requires all derivative securities to be excluded from the calculation of diluted EPS.

b. The diluted EPS is $4.00 . The Put Options are excluded as they are anti-dilutive.

c. The diluted EPS is $3.24 being the same as the Basic EPS. All of the five securities are to be excluded since they have not actually been converted and are only assumed to have been converted. IFRS does not allow reporting based upon mere assumptions.

d. The diluted EPS is $3.26 . The Put Options and the Convertible Bonds are excluded as they are anti-dilutive.

e. None of the above are correct.

Part 4] JII had granted 90,000 stock options (put options) to some of its executives, and each option gave the holder the right to sell to JII, one share at the option price of $37 per share. None of these options have yet been exercised throughout 2019. The average market price of JII's common shares during 2019 was $20. Using the reverse treasury stock method, what is the income and the number of shares that should be used in calculating diluted earnings per share for 2019?

Select one:

a. $0 and 76,000 shares.

b. $0 and 166,500 shares.

c. $1,530,000 loss and 90,000 shares.

d. $1,530,000 loss and 166,500 shares.

e. $3,330,000 and 90,000 shares.