Question

On December 31, 2016, Kanuk Utilities Corporation which adopted IFRS had 600,000 common shares and 300,000 noncumulative, non-convertible preferred shares issued and outstanding. Kanuk issued a 4% common stock dividend on May 15, 2017 and paid cash dividends of $400,000 and $75,000 to common and preferred shareholders, respectively, on December 15, 2017.
On February 28, 2017, Kanuk issued 60,000 common shares. Also as a part of a 2016 agreement for the acquisition of Vick’s Vineyards Co, another 23,000 shares (already adjusted for the stock dividend) are to be issued to former Vick’s Vineyard shareholders on December 31, 2018 if Vick’s 2018 net income is at least $500,000. In 2017, Vick’s Vineyards’ net income was $630,000.
In keeping with its long-term share repurchase plan, 3,000 shares were repurchased and cancelled on July 1, 2017. Kanuk net income after tax for the year ended December 31, 2017 was $2,100,000. The income tax rate is 40%.
On July 1, 2015 Kanuk had issued $800,000 of convertible debentures at face value. Each $1,000 bond is convertible into 30 common shares (not adjusted for the stock dividend). 2017 interest expense was $80,000 on these bonds.
Required:
Compute Kanuk’s basic and diluted EPS for the year ended December 31, 2017.

Answer 1

Basic Earning per Share
Basic EPS = Net Income - Preferred Dividend / Weighted Average Shares Outstanding
Weighted  Average shares Outstanding	in thousands				Weighted Average shares Outstanding
Date	Number of Shares	Stock Dividend	Total Shares	Weights	Number of shares x Weights
1/1/17	600	24	624	12/12 months	624
2/28/17	60	2.4	62.4	10/12 Months	52
7/1/17	-3		-3	6/12 months	-1.5
					674.5
Basic EPS =( $2100 - $75) thousands/ 674.5 thousands shares	$         3.00
Diluted EPS =
Diluted EPS = Net Income - Preferred Dividend + after-taxincome dividendsinterest savings / Weighted Average Shares Outstanding
Weighted Average shares Outstanding	in thousands				Weighted Average shares Outstanding
Date	Number of Shares	Stock Dividend	Total Shares	Weights	Number of shares x Weights
1/1/17	600	24	624	12/12 months	624
2/28/17	60	2.4	62.4	10/12 Months	52
7/1/17	-3		-3	6/12 months	-1.5
Conversion shares	30	1.2	31.2		31.2
contingent Shares					23
				Total number of shares	728.7	shares
Diluted EPS = ($2100 - $75 - 48 Thousands )/ 728.7 thousands shares	$         2.71
* The bonds are considered converted when calculating diluted EPS:  1000 bonds x 30 shares = 30,000 shares upon conversion
Interest on bonds after tax = $80000 x (1-40%)	48000