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    CH 7 Answers 09

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    sol man

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    CH 7 Answers 09

    Uploaded by

    d.pagkatoytoy
    14 views5 pages
    sol man

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    ch 7 answers 09

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    sol man

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    14 views5 pages

    CH 7 Answers 09

    Uploaded by

    d.pagkatoytoy
    sol man

    Copyright:

    © All Rights Reserved
    Download as DOC, PDF, TXT or read online from Scribd
    Download as doc, pdf, or txt
    of 5

    CHAPTER 7

    EARNINGS PER SHARE

    PROBLEMS

    7-1
    Case A
    600,000 x 12/12 x 110% 660,000
    48,000 x 3/12 (12,000)
    648,000

    Case B
    4,000,000 x 12/12 4,000,000
    1,000,000 x 9/12 750,000
    500,000 x 6/12 250,000
    5,000,000

    Case C
    600,000 x 12/12 600,000
    180,000 x 9/12 135,000
    735,000

    7-2.1 (Murdock Company)


    Numerator = P517,500 – P300,000 = P217,500
    Denominator
    150,000 x 12/12 150,000
    30,000 x 9/12 22,500
    172,500
    BEPS = 217,500 / 172,500 = P1.2609

    7-3 Case A
    BEPS = P500,000 / 50,000 = P10
    DEPS = P513,000 / 55,000 = P9.33

    Numerator for DEPS = P500,000 + (500,000 x 4% x 65%) = P513,000


    Denominator for DEPS = 50,000 + 5,000 =55,000

    Case B
    BEPS = P40,000/ 50,000= P0.80
    DEPS = P40,000/ 50,000= P0.80

    Note: The convertible preference is antidilutive as P60,000 avoidable dividends divided by


    10,000 shares is more than P0.80; hence, the convertible preference is ignored in the
    computation of DEPS.
    Case C
    Weighted average # of shares
    700,000 x 12/12 700,000
    300,000 x 4/12 100,000
    200,000 x 3/12 50,000
    850,000
    BEPS = P6,000,000 / 850,000 P7.0588

    37
    Chapter 7 – Earnings Per Share_____________________________________________________________

    DEPS = P6,910,000 / 1,200,000 P5.76

    Avoidable interest
    (10,000,000 x 8% x 65%) P520,000
    10,000,000 x 8% x 9/12 x 65% 390,000
    P910,000

    Numerator = P6,000,000 + P910,000 P6,910,000


    Denominator:
    For BEPS 850,000
    200,000 x 9/12 150,000
    200,000 x 12/12 200,000
    1,200,000

    7-4 Case A (For both basic and diluted earnings per share)
    44,000 x 12/12 x 1.25 x 2 110,000
    56,000 x 11/12 x 1.25 x 2 128,333
    25,000 x 8/12 x 1.25 x 2 ( 41,667)
    10,000 x 4/12 x 2 6,667
    Weighted average no. of shares 203,333

    Case B (For both basic and diluted earnings per share)


    Work back to find beginning outstanding shares
    511,875/0.75 = 682,500/1.05 = 650,000 – 35,000 = 615,000/3 = 205,000
    205,000 + 5,000 – 20,000 = 190,000 shares
    190,000 x 3 x 1.05 x 12/12 598,500
    20,000 x 3 x 1.05 x 11/12 57,750
    5,000 x 3 x 9/12 x 1.05 (11,812.50)
    35,000 x 1.05 x 6/12 18,375
    Weighted average no. of shares 662,812.50

    Case C
    For basic EPS
    2008
    200,000 x 1.10 x 12/12 x 2 440,000
    125,000 x 1.10 x 9/12 x 2 206,250
    7,000 x 3/12 x 2 __3,500
    649,750
    2009:
    325,000 x 1.10 = 357,500+7,000=364,500 shares, beginning
    364,500 x 2 x 12/12 729,000
    80,000 x 3/12 20,000
    749,000

    For Diluted EPS


    2008
    For basic EPS 649,750
    125,000 x 110% x 3/12 x 2 68,750
    7,000 x 9./12 x 2
    7000 (25-20)
    25 x 9/12 x 2 x 1.1x2 2,310
    720,810

    38
    Chapter 7 – Earnings Per Share_____________________________________________________________

    2009
    Beginning 364,500 x 2 x 12/12 729,000
    80,000 x 3/12 20,000
    749,000

    7-5 (Bay Corporation)


    (a) Basic EPS
    1,800,000 – (2,000 x 100 x 4%) = 1,792,000 = 8.96
    200,000 200,000

    (b) Diluted EPS


    1,800,000 = 1,800,000 = 8.91
    200,000+2,000 202,000

    (c) Basic EPS


    1,800,000 – (2,000x100x12%) = 1,776,000 = 8.88
    200,000 200,000

    Diluted EPS = 8.88


    Preference share is considered to be antidilutive as shown below:
    1,800,000 = 8.91 (considered antidilutive; only a single presentation
    200,000 of EPS is reported in the financial statements)

    7-6 (Cosmic, Inc.)


    Basic EPS
    350,025 = 350,025 = 29.17
    10,000+ (4,000x6/12) 12,000

    Diluted EPS
    350,025+ (70,000 x .65) = 395,525 = 28.25
    10,000+(4,000x6/12)+(4,000x6/12) 14,000

    7-7 (Laser Company)


    a. Basic EPS
    156,700 _____ = 156,700 = 5.11
    30,000+(2,000x4/12) 30,667

    Diluted EPS
    156,700 = 4.60
    34,080*

    *30,000 x 12/12 30,000


    2,000 x 4/12 667
    6,000 x (25-9) x 8/12 2,560
    25
    4,000 x (25-9) x 4/12 853
    25
    34,080

    39
    Chapter 7 – Earnings Per Share_____________________________________________________________

    b. Basic EPS
    156,700 _____ = 156,700 = 4.897
    30,000+(6,000x4/12) 32,000

    DEPS

    *for BEPS 32,000


    6,000 x (25-9)
    25 x 8/12 2,560
    34,560

    DEPS = 156,700/34,560 P4.53

    7-8.1 (Lili Pharmaceutical Company)


    ↑ in earnings
    attributable to Earnings per
    ordinary incremental
    shareholders ↑ in number of ordinary share
    shares
    Options Nil 100,000 (20-15) = 25,000 Nil
    20
    Convertible P1,250,000 x 25,000 x 10 P0.425
    preference 8.5% = 250,000
    shares = P106,250
    7% convertible P5,000,000 x 7% 5,000 x 50 = P0.91
    bonds x 65%= P227,500 250,000

    The sequence to include potential ordinary shares is as follows


    (1) options
    (2) convertible preference shares
    (3) convertible bonds
    Basic earnings per share =( P 1,500,000 – P106,250) / 1,000,000 shares = P1.39

    When only options are considered, the dilutive earnings per share is
    P1,500,000-P106,250 = P 1.36
    1,000,000 + 25,000

    When convertible preference shares are then considered, the dilutive earnings per share is
    ______P1,500,000____ = P1.18 thus, the convertible preference is dilutive.
    1,025,000 + 250,000

    When 7% convertible bonds are also considered, the dilutive earnings per share is
    P1,500,000 + 227,500 = P1.13 ; thus, the convertible bonds are dilutive
    1,275,000 + 250,000
    The dilutive earnings per share is P1.13

    40
    Chapter 7 – Earnings Per Share_____________________________________________________________

    MULTIPLE CHOICE QUESTIONS

    Theory
    MC1. C MC6. D
    MC2. C MC7. C
    MC3. B MC8. C
    MC4. D MC9. A
    MC5. B MC10. C

    Problems
    MC11. C 1,000,000 – (20,000 x 100 x 5%) = 900,000/200,000 = 4.50
    MC12. C 300,000 – 30,000 = 270,000; 270,000/30,000+(6,000x6/12) = 8.18
    MC13. B 290,100 – (30,000 x 4) = 170,100/60,000+(31,500x 8/12) = 2.10
    MC14. B 1,100,000 = 1,100,000 = 4.82
    (200,000 x 1.10) + 40,000 x (25-20) 228,000
    25
    MC15. D 250,000 + (60,000x3/12) + 50,000 = 315,000
    MC16. B 1,000,000 – (5% x 10,000 x 100)/100,000 = 9.50
    MC17. D 2,500,000 + (500,000 x 9/12) + (250,000 x 6/12) = 3,000,000
    3,000,000 + (5,000 x 40 x 3/12) = 3,050,000
    MC18. B 600,000 – (20,000 x 3) = 540,000/200,000 = 2.70
    MC19. C 600,000 + (1,000,000 x 10% x 70%) = 2.35
    200,000 + 40,000 + (1,000 x 45)
    MC20. D 30,000 x (25-20)/25 = 6,000
    MC21. B 495,000/4.95 = 100,000 shares; 2008: 495,000/(100,000 x 1.10) = 4.50
    2009: 825,000/(110,000 + (12,000 x 4/12) = 7.24
    MC22 B 850,000/130,000 = 6.54
    MC23 B 150,000 + (15,000 x 6/12) + (15,000 x 2/12) = 160,000
    MC24 B (770,000 – 140,000) / 160,000 = 3.94
    MC25 A 770,000/(160,000+40,000) = 3.85
    MC26 B 100,000 + (10,000 x 3/12) = 102,500
    MC27 C (177,500 – 20,000) / 102,500 = 1.54
    MC28 B 177,500 / (102,500 + 20,000) = P1.45
    MC29 C (100,000 X 2 X 120%) + (30,000 X 120% X 7/12) = 261,000
    MC30 A Numerator: 2,000,000 – (1,000,000 x 7.5% x 8/12) = 1,950,000
    Denominator: 100,000 + (60,000 x 4/12) = 120,000
    BEPS = 1,950,000/120,000 = P16.25

    41

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