You have been asked to calculate the basic and diluted earnings per share figures for Al Rihab Company. The following information are valid by the end of 2019:

1. There were 2,900,000 shares outstanding at the beginning of 2019.
2. The company has preference share capital of $7,500,000 at the beginning of 2019. These were 8%, cumulative, convertible preference shares with $3 par value per share. Each preference share is convertible into THREE ordinary shares. The conversion rate must be adjusted for any share dividend or share split occurring during the year. On May 1, 2019, 300,000 preference shares have been converted into ordinary shares. Another 300,000 shares have been repurchased at cost on the same date. The remaining shares were outstanding till year end. The preference dividend is paid every 2 months.
3. The company has two convertible debt instruments outstanding at the end of 2019 as follows:
   1. Convertible bond class (A): This is a $1,000,000 face value, 6%, 10-year bond that was issued on 1 January 2016. These bonds pay interest semi-annually and are convertible into 500,000 ordinary shares. The total issue price of the bond was $1,100,000. On 1 October, 2019, the holders of the bonds converted 40% of them into ordinary shares.
   2. Convertible bond class (B): This is a $5,000,000 face value, 10%, 5-year bond that was issued on 1 October, 2019. Each $100 bond is convertible into two ordinary shares. The bonds pay interest annually. The total issue price of the bond was $6,000,000.
4. On 1 March, 2019, the company declared and distributed a 15% share dividend to outstanding shareholders.
5. On 1 April 2019, the company executed a 3:1 share split on outstanding shares.
6. On 1 January 2019, the company granted its executives a total of 120,000 options with an exercise price of $25 per share. The options are valid for two years and are considered for compensation purpose. The service period was estimated to be two years. The options were valued at

$1,800,000. The exercise/expiry of options is assumed to take place semi-annually on 1 July and 1 January of each year. The average market price of ordinary shares on 1 July, 2019 and 31 December 2019 was $30 per share and $20 per share, respectively.

7. Net income for 2019 was $18,000,000.

8. The effective market rate was 8% and the tax rate was 20%.

Part (C)

Consider the information presented in Part (B). In addition, consider the following:

While you were gathering the information, you discovered the following possible accounting irregularities and issues:

1. The company had equity investments outstanding at the end of 2019 as follows:

Investment	%	Cost ($)	Fair value @ 31 December 2019 ($)	Investee reported Income (2019) ($)	Investee declared dividends (2019) ($)
A (non- trading)	10%	100,000	120,000	150,000	15,000
B (non- trading)	15%	350,000	390,000	200,000	10,000
C	25%	400,000	340,000	340,000	40,000

In 2019, fair value adjustment account had a beginning debit balance of $10,000. Upon reviewing the accounting treatment for these investments, you discovered that the company did the following:

1. 1. For investment (A): This investment was acquired at the beginning of 2019. The company purchased 8,000 shares of Company A for $12 per share. The company also paid $4,000 for brokerage fees. The previous accountant capitalized the full cash payment as an equity investment.
   2. For Investments (A) and (B), the previous accountant has been classifying any unrealized holding gain(loss) by the end of each year as part of the Income Statement.
   3. For Investment (C): this investment was made in 2018. The company believes that it has gained significant influence over the investee upon acquisition of the investment. Nonetheless, the previous accountant used the fair value method to account for this investment.
2. The company calculated the compensation expense for 2019, assuming a one-year service period.
3. The company has a debt investment with a remaining maturity term of 3 years as of 31 December 2019. This investment is related to bonds issued by Rojan Company. The bonds have a face value of $600,000 with a coupon rate of 12% and 5 year maturity term. Interest is received semi- annually on 1 January and 30 December. On 31 December 2019, just after the receipt of interest, but before the preparation of the financial statements for the year, Rojan Company informed Prime Company that it is no longer able to honor its future obligations with regard to the bonds and asked for renegotiation of the original terms. On the same day, both companies agreed to reduce the coupon rate to 9% and reduce the maturity value to $550,000 for the remaining term of the bonds. They have also agreed that, given the current status of Rojan, the effective market rate should be adjusted to 16%. The announcement made by Rojan and the subsequent renegotiation of the bond terms on 31 December 2019, was not reflected in the financial statements of 2019.

Required:

1. Using the information in both parts (B) and (C) recalculate the basic earnings per share for the year 2019. (Show all your calculations)

(Make any necessary adjustments to the relevant accounts in Part (C) in case you believe there has been an accounting error committed AND provide an explanation)