Question

On 1/1/2019 Jawed corporation had 10,000 of ordinary shares (C.S) outstanding. During 2019, it had the following transactions that affected the ordinary shares account:

 

March         15:	Issued 30,000 Shares.
June            1:	Issued a 20% stock   dividend.
July             1:	Acquired 5,000 share   of treasury stock.
September   1:	Issued a 10-for-1   stock split.
December    1:	Reissued 4,000 shares   of treasury stock.

 

Instructions:

1-      Determine the weighted-average number of shares outstanding as of December 31, 2019. (3.5 Points)

 

 

 

 

 

2-     Assume the net income of the company is $100,000 and the preferred dividends $30,000. Compute EPS. (1.5 Point)

 

 

3-     If the company on November 1 transferred $100,000 Bonds to 5,000 ordinary shares: (4 Points) 

 

a-     What would be the total shares at that date only?  (1 point)

 

 

Define this type of bonds and clarify its impact on the earning per share? (4 Points)  

Answer 1

1)
Weighted  Average shares Outstanding					Weighted Average shares Outstanding
Date	Number of Shares	Stock Dividend	Total Shares	Weights	Number of shares x Weights
1/1/19	10000	2000	12000	12/12 months	12000
3/15/19	30000	6000	36000	9.5/12 Months	28500
1-Jul	-5000		-5000	6/12 months	-2500
1-Sep	10:1 stock split			380000
1-Dec	4000			1/12 months	333
Weighted  Average shares Outstanding (380,000+333)			380,333
2)
Basic EPS = Net Income - Preferred Dividend / Weighted Average Shares Outstanding
Basic EPS =100,000 - $30,000 / 380,333 shares	$         0.18	Per share
3)
Total Shares = 380,333 + 5000	385,333
b)
These are convertible bonds that are converted into shares and its impact will be shown in the Diluted EPS. EPS will be reduced after considering convertible bonds converted to common Shares.
Diluted EPS = Net Income - Preferred Dividend + after-tax income interest savings / Weighted Average Shares Outstanding