PSBA Integrated Review

Financial Accounting and Reporting – Problem Christian Aris Valix

Diluted earnings per share

1. An entity had 100,000 ordinary shares of P20 par value and 10,000 shares of P100, 5%
cumulative convertible preference share capital outstanding at the beginning of the year.
Each preference share can be converted into 5 ordinary shares. The net income for the current
year is P1,680,000. The preference shares were converted on July 1 of the current year. The
annual preference dividends were paid in full before the conversion. Compute the basic EPS
and diluted EPS for the current year.

2. At the beginning of the current year, an entity had 500,000 ordinary shares outstanding. The
entity also had P10,000,000 of 6% convertible bonds at the beginning of the current year
which are convertible into 250,000 ordinary shares. The bonds were converted on October 1
of the current year. Net income for the year is P6,500,000 and the income tax rate is 30%.
Compute the basic EPS and diluted EPS for the current year.

3. At the beginning of the current year, an entity had 300,000 ordinary shares outstanding and
options outstanding to purchase 50,000 shares at P30 per share. The average market price of
each share was P40 and net income for the year was P9,000,000. Options were not exercised
during the year. Compute the basic EPS and diluted EPS for the current year.

4. An entity had 200,000 ordinary shares, 20,000 convertible preference shares and P5,000,000
of 10% convertible bonds outstanding during the year. The preference shares are convertible
into 40,000 ordinary shares and the bonds are convertible into 25,000 ordinary shares. During
the current year, the entity paid P40 per share on the preference share, net income was
P8,000,000 and the tax rate was 30%. Compute the basic EPS and diluted EPS for the current
year.

5. At the beginning of the current year, an entity had 400,000 ordinary shares outstanding. The
entity also had P5,000,000 of 8% convertible bonds at the beginning of the current year
which are convertible into 200,000 ordinary shares. There was no conversion during the year.
Net loss for the year is P3,500,000 and the income tax rate is 30%. Compute the basic loss
per share and diluted loss per share for the current year.

END