ACY4001 Advanced Accounting ǀ

2019-20 Semester 2

Individual Assignment 4
Chapter 16-Part 2 Earnings per Share

IA4. Amy Kip, controller at Thompson Corporation, a public company, is currently preparing the
calculation of basic and diluted earnings per share and the related disclosure for Thompson’s financial
statements. Selected financial information for the fiscal year ended December 31, 2019, is shown below.

Thompson Corporation
Selected Statement of Financial Position Information
December 31, 2019
Equity
Share capital—preference, 6% cumulative, convertible, $50 par, $1,250,000
100,000 shares authorized, 25,000 shares issued and outstanding
Share capital—ordinary, $1 par, 10,000,000 shares authorized, 1,000,000
1,000,000 shares issued and outstanding
Share premium— (includes any amounts for options and 4,000,000
conversions)
Retained earnings 6,000,000
Total equity $12,250,000

Long-term debt
Notes payable, 10% $1,000,000
Convertible bonds payable 5,000,000
Bonds payable, 10% 6,000,000
Total long-term debt $12,000,000

Additional information:
1. On January 1, 2019, Thompson had 200,000 ordinary shares outstanding. During 2019, it had the
following transactions that affected the ordinary shares:
April 1 Issued 200,000 ordinary shares for cash.
July 1 Issued a 25% share dividend on ordinary shares.
October 1 A 2-for-1 split of ordinary shares became effective.
2. The 6% cumulative, convertible preference shares were issued at par in 2017. Each preference share is
convertible into two ordinary shares (adjusted for share dividend and share split).
3. Thompson’s outstanding and vested options were granted to five key executives on July 1, 2016, to
purchase 200,000 shares at $15 per share. Although no options were exercised during 2019, the average
market price for ordinary shares during 2019 was $20 per share.
4. The convertible bonds were issued in 2017. The convertible bonds are convertible into ordinary shares
at 100 shares per $1,000 bond (adjusted for share dividend and share split). The interest on the liability
component of the convertible bonds for 2019, was $450,000.
5. There are no preference dividends in arrears; however, no preference dividends were declared in 2019.
6. Net income for 2019 was $1,500,000, and the average income tax rate is 20%.

Required:
(a) Determine the weighted-average ordinary shares used as the denominator in calculating basic earnings
per share for the year ended December 31, 2019 for Thompson Corporation.
(b) Compute the basic and diluted earnings per share for the year ended December 31, 2019 for Thompson
Corporation, and disclose instrument(s) that is(are) antidilutive for the year ended December 31, 2019.

(Round earnings per share to the nearest cent. Show all necessary computations.)