Question

can someone please assist with these questions

Chapter 19 -- Earnings per Share 87. The balance sheet at the beginning of the current year for GHI Inc. reflected the following: Liabilities: Bonds payable, 7 percent, nonconvertible $400 Discount on bonds payable 20 Shareholders' equity: Preferred shares, $20 par, 5 percent cumulative, convertible one for one 300 Common shares, no par, 100 shares issued 1,040 Retained earnings Treasury stock, common (8 shares) No transactions affecting the denominator of EPS occurred during the year. Assume the preferred shares are dilutive. The number of potential common shares to be included in the denominator of fully diluted EPS is: A) B) C) D) E) 15. 14. 13. 10. 0. Ans: A Difficulty: Medium Level of Learning: Application Topic: LO3 88 At December 31, 20x2, HIJ had 2,000 common shares outstanding. On January 1, 20x3, HLJ issued 1,000 convertible preferred (one share of common for one share of preferred) shares. During 20x3, HIJ declared and paid $4,000 cash dividends on the common and $4,000 cash dividends on the preferred (the annual requirement). Net income for the year ended December 31, 20x3, was $36,000. Assuming an income tax rate of 50 percent, what should be diluted earnings per share for the year ended December 31, 20x3? A) $12 B) $16 C) $17 D) $18 Ans: A Difficulty: Medium Level of Learning: Application Topic: LO3 lated Finh Feria Vol

Answer 1

Answer 87

Option A: 15 shares

The amount of preferred share capital is $300 whose par vale $20 per share. Therefore, while dividing the two {300/20}, we get 15 potential shares that should be included while calculating the diluted EPS. Further, the question clearly states that the preferred shares are dilutive. In such a scenario, it is mandatory to calculate potential equity shares for the calculation of diluted EPS.

Answer 88

Option A: $12 which is illustrated below

Si no $ Particulars 1 Net Income 2 No of common shares 3 Potential Common Shares 4 Total shares for diluted EPS (2+3) 5 Diluted EPS Data 36,000 2000 1000 3,000 $ 12

Note: Potential common shares are the convertible preferred shares which are issued on basis of a conversion ratio of 1:1 in the future.