Question

can someone please assist with these questions

84. Given the following sequence of events, determine the weighted average number of shares for earnings per share purposes: January 1 100 common shares issued and outstanding April 1 Issued 50 previously unissued shares May 1 Split the stock 2-for-1 June 30 Purchased 100 shares for the treasury July 30 distributed a 20% stock dividend December 31 Split the stock 3-for-1 A) 1,125 B) 475 C) 270 D) 810 Ans: D Difficulty: Medium Level of Learning: Application Topic: LO3 85. Last year, TUV had 40,000 $15 par, 7 percent, cumulative, convertible preferred shares outstanding. The Board of Directors did not declare a dividend for the current period because all of these shares were converted to common shares on the first day of the period. What is the effect on the numerator of the EPS calculation for this year due to the preferred shares? (Tax rate is 40 %.) A) Add $42,000 Subtract $42,000 Subtract $25,200 Not determinable from the information given. D) E) Ans: A Difficulty: Medium Level of Learning: Application Topic: LO2 86. On January 1, 20x3, WXY had stock warrants outstanding to purchase 6,000 shares at an option price of S1o. The common shares' market price was $15 the entire year. The firm has 200,000 common shares outstanding at the end of the year. The effect of the warrants on EPS is to: A) Increase the denominator of all EPS calculations by 6,000 shares. B) Increase the denominator of all EPS calculations by 2,000 shares. C) Affect the diluted EPS calculation, but not the basic EPS calculation. D) Have no potentially dilutive effect on the EPS calculation E) Increase the denominator of all EPS calculations by 4,000 shares. Ans: C Difficulty: Medium Level of Learning: Application Topic: LO3

Answer 1

Question No. (84)

Answer -

Calculation of Weighted average number of shares for Earnings per share

	Date	Particulars	No. of shares	Period	Calculation	Number of Shares Outstanding
A.	January 1	Common shares issued and outstanding	100 shares [Given]	January 1 to May 1 = 4 months	100 shares * (4/12) months	33 shares
B.	April 1	Issued previously unissued shares	50 shares [Given]	April 1 to May 1 = 1 month	50 shares * (1/12) months	4 shares
C.	May 1	Split the stock 2-for-1	-	May 1 to December 31 = 8 month	150 shares Split into 300 shares = 300 shares * (8/12) months	200 shares
D.	June 30	Purchased for the treasury	100 shares [Given]	June 30 to December 31 = 6 months	100 shares * (6/12) months	(50) shares
E.	July 30	Distributed a 20% stock dividend	-	July 30  to December 31 = 5 months	200 shares * (5/12) months	83 shares
F.	December 31	Split the stock 3-for-1	-	-	(A + B + C - D + E) * 3 = (33 + 4 + 200 - 50 + 83) shares * 3	810 shares

Weighted average number of shares for Earnings per share purposes = 810 Shares.

Therefore, Option - (D) is Correct.

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Question No. (85)

Answer -

EPS = Net income - Preferred dividends / Average outstanding common shares.

In the given case, The Board of Directors did not declare a dividend for the current period because all of these shares were converted to common shares on the first day of the period.

There is no effect on the numerator of the EPS calculation for this year due to the preferred shares, because dividends are not declared.

Hence, Option - (A) is Correct.

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Question No. (86)

Answer -

Diluted EPS is a calculation used to estimate the quality of a company's Basic EPS if all convertible securities were exercised.

Convertible securities are all outstanding convertible Debentures, Stock options, convertible Preferred shares, and Stock warrants.

In the given case, WXY Company had Stock warrants outstanding to purchase 6000 shares at an option price of $10. These outstanding Stock warrants are convertible securities and Dilutive in nature. They affect the Diluted EPS calculation, but not the Basic EPS calculation.

Hence, Option - (C) is Correct.

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