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Week 6 Basic Earnings Per Share

The document provides information about basic earnings per share calculations for several companies. It includes data on shares outstanding, net income amounts, dividends paid, and capital structures. Multiple choice questions are provided after scenarios for each company, testing the ability to calculate basic earnings per share based on the information given.

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Pearlle Ivana Tavarro
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© © All Rights Reserved
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409 views

Week 6 Basic Earnings Per Share

The document provides information about basic earnings per share calculations for several companies. It includes data on shares outstanding, net income amounts, dividends paid, and capital structures. Multiple choice questions are provided after scenarios for each company, testing the ability to calculate basic earnings per share based on the information given.

Uploaded by

Pearlle Ivana Tavarro
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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BASIC EARNINGS PER SHARE

Problem 1

Assume that the following data relative to Eddy Company for 2020 is
available: Net Income P2,100,000

Transactions in Common Shares Change Cumulative Jan. 1, 2020, Beginning number


700,000 Mar. 1, 2020, Purchase of treasury shares (60,000) 640,000 June 1, 2020, Stock split
2-1 640,000 1,280,000 Nov. 1, 2020, Issuance of shares 120,000 1,400,000

8% Cumulative Convertible Preferred Stock sold at par, convertible into 200,000 shares of
common (adjusted for split) ----------------------------------------------------------------------
P1,000,000

Stock Options exercisable at the option price of P25 per share. Average market price in 2020,
P30 (market price and option price adjusted for split) ------------------------------------- 60,000
shares

1. What is the weighted average share outstanding during the year?


A. 1,320,000
B. 1,380,000
C. 1,220,000
D. 1,280,000
2. What is the basic earnings per share?
A. P1.53
B. P1.56
C. P1.61
D. P1.63

Problem 2

Ramirez Corporation has 400,000 shares of common stock outstanding throughout 2020. In
addition, the corporation has 5,000, 20-year, 7% bonds issued at par in 2018. Each $1,000 bond
is convertible into 20 shares of common stock after 9/23/21. During the year 2020, the
corporation earned P600,000 after deducting all expenses. The tax rate was 30%.

What is the basic earnings per share?


A. P1.00
B. P1.50
C. P2.00
D. P2.50

Problem 3
Jett Corp. had 600,000 shares of common stock outstanding on January 1, issued 900,000
shares on July 1, and had income applicable to common stock of P1,050,000 for the year
ending December 31, 2021.

Earnings per share of common stock for 2021 would be?


A. P1.75
B. P0.83
C. P1.00
D. P1.17

Problem 4

Given the following information


March 1 Issued 15,000 ordinary shares

May 1 Purchased 3,000 ordinary shares to be held as treasury shares

June 1 Split ordinary share 2 for 1

August 1 Issued 2,000 ordinary shares

December 1 Issued 4% bonus issue

The weighted average number of shares to be used in the calculation of basic earnings per
share is 189,107.

Compute for the number of ordinary shares issued and outstanding as of January 1 of
Hazel Company.

A. 80,000
B. 120,000
C. 160,000
D. 166,400

Problem 5

Night Company has 500,000 ordinary shares issued and outstanding at December 31, 2020.
During 2021 no additional shares was issued. On January 1, 2021, Night issued 400,000
nonconvertible preference shares. During 2021, Night declared and paid P180,00 and P150,000
cash dividends to ordinary and nonconvertible preference shares respectively. Net income for
the year ended December 31, 2021 was P960,000.
What should be the 2021, earnings per ordinary shares of Night
Company?
A. P0.90
B. P1.26
C. P1.62
D. P1.92

Problem 6

Monitor Company has 120,000 ordinary shares issued and outstanding at January 1, 2020. On
January 2 of the same year, the company issued 80,000 preference shares. During the year the
company declared and paid P420,000 and P240,000 cash dividends on ordinary and preference
shares respectively. Net income for the year was P1,500,000.

What should be the basic earnings per share on 2020?


A. P9.00
B. P10.50
C. P12.50
D. P15.75

Problem 7

Promise Company capital structure is shown below:


December 31
2021 2020
Outstanding shares of stock:
Ordinary 110,000 110,000 Convertible Preference 10,000 10,000

During 2021, Promise paid dividends of P3.00 per share on its preference share. The preferred
shares are convertible into 20,000 shares of ordinary. Net income for 2021 was P850,000.

Assume the income tax rate is 32%, how much is the basic earnings per
share? A. P6.30
B. P7.45
C. P6.54
D. P7.73

Problem 8

Milo Company had the following capital structure during 2020 and 2021:

Preference share capital, P10 par, 4% cumulative


25,000 shares issued and outstanding P250,000 Ordinary share capital, P5 par,
200,000 shares
Issued and outstanding P1,000,000
The entity reported net income of P500,000 for the year ended December 31, 2021. The entity
paid no preference dividends during 2020 and paid P16,000 in preference dividends during
2016.

What amount should be recorded as basic earnings per share?


A. P2.42
B. 2.45
C. 2.48
D. 2.50

Problem 9

Makati Company reported net income of P15,000,000 for the current year. The net income
reflects an income tax rate of 30%. The net income included a casualty loss of P5,000,000
before income tax. The entity showed the following shareholder’s equity at year end:

Preference share capital 10% cumulative, P50


par value, 100,000 shares P 5,000,000 Ordinary share capital, P100 par value
30,000,000 Share premium 10,000,000 Retained earnings 18,000,000 Treasury
ordinary shares, 50,000 at cost 4,000,000

What amount should be reported as basic earnings per share?


A. P58.00
B. P60.00
C. P73.60
D. P48.33

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