1.

EPS disclosures are d)

a. Encouraged for all entities
b. Required for all entities
c. Encouraged for public entities and required for nonpublic enterprise.
d. Required for public entities and encouraged for nonpublic entities

2. Which statement is incorrect regarding presentation of basic and diluted EPS? D)

a. Earnings per share is presented for every period for which a statement of comprehensive
income is presented.
b. If diluted earnings per share is reported for at least one period, it shall be reported for all
periods presented, even if it equals basic earnings per share.
c. If basic and diluted earnings per share are equal, dual presentation can be accomplished
in one line in the statement of comprehensive income.
d. Basic and diluted EPS need not be presented if the amounts are negative.

3. If an entity presents items of profit or loss in a separate statement of profit or loss, it presents
earnings per share a)
a. Only in the statement of profit or loss.
b. Only in the statement of profit or loss and other comprehensive income.
c. Only in the statement of changes in equity.
d. Only in the notes to the financial statements.

4. Which statement is incorrect regarding basic earnings per share computation? D)

a. The objective of basic earnings per share information is to provide a measure of the
interests of each ordinary share of a parent entity in the performance of the entity over the
reporting period.
b. Basic EPS is calculated by dividing profit or loss attributable to ordinary equity holders
of the parent entity (the numerator) by the weighted average number of ordinary shares
outstanding ( the denominator) during the period.
c. The denominator is calculated by adjusting the shares in issue at the beginning of the
period by the number of shares bought back or issued during the period, multiplied by a
time weighting-factor.
d. None of the above.

5. EPS is calculated before accounting for which of the following items?

a. Preference dividend for the period
b. Taxation
c. Minority interest
d. Ordinary dividend

6. The weighted average number of the ordinary shares outstanding during the period and for all
periods presented shall be adjusted for events that have changed the number or ordinary
shares outstanding without a corresponding change in resources. These events do not include
C)
a. Capitalization or bonus issue
 b. Bonus element in a rights issue to existing shareholders
c. Share split
d. Conversion of potential ordinary shares

7. Moon Co. has one class of ordinary shares outstanding and no other securities that are not
potentially convertible into ordinary shares. During 2019, 100,000 ordinary shares were
outstanding. In 2020, the following distributions of additional ordinary shares occurred:
 April 1 – Sold 20,000 treasury shares
 July 1 – 2-for-1 share split
Profit was P410,000 in 2020 and P350,000 2019.
What amounts should Moon report basic EPS in its 2020 and 2019 comparative income
statements, respectively?
a. P1.78 and P3.50 EPS (2020) = 410,00/230,000 2020 2019
b. P1.78 and P1.75
EPS (2019) = 350,000/200,000 100,000*3/12=25,000 100,000*2=200,000
c. P2.34 and P1.75
120,000*9/12=90,000
d. P2.34 and P3.50
115,000*2=230,000

8. If a bonus issue occurs between the year-end and the date that the financial statements are
authorized, then
a. EPS both for the current and the previous year are adjusted a)
b. EPS for the current year only is adjusted
c. No adjustment is made to EPS
d. Diluted EPS only is adjusted

9. Undeclared dividends are deducted from net income in the earnings per share computation
for which type of preference shares? B)
a. Non-cumulative only
b. Cumulative only
c. Neither non-cumulative nor cumulative
d. Both non-cumulative and cumulative

10. Day Company had the following capital during 2019 and 2020:
Preference share capital, P100 par, 10% cumulative, 100,000 P10,000,000
shares
Ordinary share capital, P100 par, 400,000 shares 40,000,000

Day reported profit of P8,000,000 for the year ended December 31, 2020. Day paid no
preference share dividends during 2019 and paid P1,500,000 preference share dividends
 during 2020. On January 31, 2021, prior to the date that the financial statements are
authorized for issue, Day distributed 10% ordinary shares dividend.
In its 2020 statement of profit or loss, what amount should Day report as basic EPS?
a. P17,50 400,000*1.10=440,000 shares
b. P15.91
c. P16.25 8,000,000 – *1,000,000 = 7,000,000
d. P14.77 EPS = 7,000,000/440,000
*if the preference shares are cumulative, one-year dividend is deducted, whether declared
or not.
11. Surete Co. profit available for *if
ordinary shareholders’
the preference for the yearonly
shares are noncumulative, ended December
the dividend 31,
declared 2019
during the period
and 2020 were P2,100,000 and P3,500,000, respectively.

The ordinary shares in issue on January 1, 2020 were 800,000.

Surete offered existing shareholders’ rights issue of one for five shares at a price of P6 per
share to be exercised on April 1, 2020. The market value of Surete’s shares on that date was
P10 per share.

What amounts should Surete Co. report as basic EPS in its 2020 and 2019 comparative
income statements?
a. P7.80 and P2.63, respectively.
b. P3.75 and P2.45, respectively.
c. P7.80 and P2.45, respectively.
d. P3.75 and P2.63, respectively.

Step 1: compute for the theoretical/parity value of 1 right.

Value of 1 right = (FV of share right-on – Subscription price) / (No. of rights needed to purchase one share + 1)

Step 2: Compute for the theoretical ex-rights fair value per share.

Theoretical ex-rights fair value per share = FV of shares selling right on – Value of 1 right

Step 3: Compute for the adjusting factor.

Adjustment factor = FV of stocks immediately before the exercise of rights/Theoretical ex-rights FV per share

Step 1 : Value of 1 right = 10-6/5+1 = 4/6 = .67 Jan 1 (800,000*1.07*3/12) 214,000

Step 2: Theoretical ex-rights FV per share= 10 - .67 = 9.33 Apr 1 (960,000*9/12) 720,000
Step 3: Adjustment factor = 10/9.33 = 1.07 WA no of outstanding shares 934,000
YEAR 2019
Profit for the year 2,100,000
Divide by: WA no. of outstanding shares x AF (800,000 x 1.07) 856,000
Basic EPS 2.45

YEAR 2020
Profit for the year 3,500,000
Divide by: WA no. of outstanding shares x AF (934,000 x 1.07 934,000
Basic EPS 3.75
12. Potential ordinary shares include d)
a. Share warrants and options
b. Debt or equity instruments, including preference shares, that are convertible into ordinary
shares.
c. Shares which would be issued upon the satisfaction of certain conditions resulting from
contractual arrangements, such as the purchase of a business or other asset.
d. All of the above.

13. Dilution is c)
a. A reduction in earnings per share resulting from the assumption that convertible
instruments are exercised, or that ordinary shares are issued upon the satisfaction of
specified conditions.
b. An increase in loss per share resulting from the assumption that convertible instruments
are exercised, or that ordinary shares are issued upon the satisfaction of specified
conditions.
c. Either a or b
d. Neither a nor b

14. Which statement is incorrect regarding diluted earnings per share computation and
presentation? D)
a. Diluted EPS is calculated by adjusting the earnings and number of shares for the effects
of dilutive options and other dilutive potential ordinary shares.
b. The effects of anti-dilutive potential ordinary shares are ignored in calculating diluted
EPS.
c. Diluted earnings per share shall be reported for all periods, even if it equals to basic
earnings per share.
d. None of the above.

15. Anata Co. had earnings per share of P15 for 2020 before considering the effects of any
convertible securities. No conversion or exercise of convertible securities occurred during
2020. However, possible conversion of convertible bonds , not considered ordinary share
equivalents, would have reduced earnings per share by P0.75. The effect of possible exercise
of share options would have increased earnings per share by P0.10.

What amount should Anata report as diluted earnings per share for 2020? A)
a. P14.25
b. P14.35
c. P15.00
d. P15.10
16. At what point are dilutive potential shares deemed to have been converted into ordinary
shares? D)
a. At the start of the period.
b. At the end of the period.
c. The date of the issue of the dilutive shares.
d. At the start of the period, or, if later, the date of the issue of the potential shares.

17. Miki Co. had 200,000 ordinary shares, 20,000 convertible preference shares, and P1,000,000
of 10% bonds outstanding during 2018. The preference shares is convertible into 40,000
ordinary shares. During 2018, Miki paid dividends of P1.20 per share on ordinary shares and
P4.00 per share on preference shares. Each P1,000 bond is convertible in 45 ordinary shares
if converted before 2020 and 40 shares if converted after 2020. The profit for 2018 was
P800,000 and the income tax rate was 30%.
Diluted earnings per share for 2018 is
a. P2.77
b. P3.05 Diluted EPS = P/L plus After tax interest expense on convertible bonds
c. P2.81 Weighted average no. of outstanding OS plus potential OS
d. P3.08

Diluted EPS = 800,000+70,000 / 200,000+45,000+40,000

18. Toro Company provides the following data for the entire year:
Profit P10,000,000
Ordinary share capital, P100 par, 400,000 shares 40,000,000
400,000+40,000=440,000-32,000=408,000
400,000+8,000=408,000

Options and warrants outstanding during the entire year:

Options shares 40,000
Exercise price 200
Average market price 250
Ending market price 400

Diluted earnings per share should be

a. P25.00
b. P24.51 Option shares
Multiply by: Exercise price
c. P22.72
Proceeds from assumed exercise of options
d. P23.81 Divide by: ave. Market price
Treasury shares assumed to have been purchased
Use the following information for the next two questions.
The information below pertains to Kimochi Company.
Profit for the year P1,200,000
8% convertible bonds issued at par (P1,000 per bond). Each 2,000,000
bond is convertible into 40 ordinary shares (2,000 bonds)
6% convertible, cumulative preference shares, P100 par 3,000,000
value. Each share is convertible into 3 ordinary shares.
Ordinary shares, P10 par value (600,000 shs) 6,000,000
Share options (granted in a prior year) to purchase 50,000 500,000
ordinary shares at P20 per share
Tax rate 40%
Average market price of ordinary shares P25 per share

There were no changes during the year in the number of ordinary shares, preference shares, or
convertible bonds outstanding. There is no treasury shares
19. Compute the basic earnings per share
a. P2.00
b. P1.70
c. P1.82
d. P1.07

20. Compute diluted earnings per share

a. P1.70
b. P1.62
c. P1.66
d. P1.26

21. For the purpose of calculating diluted earnings per share, which of the following will not
require an after-tax adjustment:
a. Any dividends relating to dilutive potential shares, deducted in arriving at profit.
b. Any interest recognized in the period, related to diluted potential shares.
c. Any other changes in income (or expense) that would result from the conversion of the
dilutive potential shares.
d. Any dividends, which are proposed on existing shares after the period end.
22. The income statement of Kai Company shows a net loss of P10,000,000 for the year ended
December 31, 2018. The company had shares outstanding as follows:
Ordinary share capital, P100 par, 400,000 shares P40,000,000
Preference share capital, P100 par, 10% cumulative, shares 10,000,000
convertible 100,000 ordinary shares
The basic loss per share should be
a. P27.50
b. P25.00
c. P22.00
d. P22.50