CPA REVIEW SCHOOL FOF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

BASIC EARNINGS PER SHARE

1. An entity had the following share capital during 2021:

Preference share capital, P10 par, 10% cumulative, 400,000 shares 4,000,000
Ordinary share capital, P100 par, 50,000 shares 5,000,000
The entity reported net income of P5,000,000 for the current year. There are no preference dividends
in arrears on December 31, 2019. The entity paid no preference dividends during 2020 and paid
P300,000 in preference dividends during 2021. What amount should be reported as basic earnings
per share for 2021?
a. 92
b. 90
c. 94
d. 84
2. An entity had 100,000 ordinary shares issued and outstanding at the beginning of current year.
During the current year, the entity revealed the following ordinary share transactions:
April 1 Issued 30,000 previously unissued shares
May 1 Split the share 2 for 1
June 30 Purchased 10,000 shares for the treasury
July 31 Distributed a 20 percent bonus issue
December 31 Split the share 3 for 1
What is the weighted average number of shares for EPS purposes?
a. 288,000
b. 864,000
c. 882,000
d. 972,000
3. On January 1, 2021, an entity had the following capital structure:
Ordinary share capital, 200,000 shares, P10 par value 2,000,000
Preference share capital, 50,000 shares, P100 par value, 8% noncumulative
and nonparticipating 5,000,000
On March 1, 2022, the entity issued a 25% share dividend on ordinary shares prior to the issuance
of financial statements for 2021. No dividend was declared on preference shares during 2021. The
net income for 2021 was P6,000,000. What amount should be reported as basic earnings per share
for 2021?
a. 24.00
b. 22.40
c. 28.24
d. 26.35
4. On January 1, 2021, an entity had the following capital structure:
Ordinary share capital, 300,000 shares, P10 par value 3,000,000
Preference share capital, 50,000 shares, 8% cumulative, P100 par value 5,000,000
In the light of the availability of surplus funds and declining market yield, the entity agreed with the
preference shareholders to redeem the preference shares on January 1, 2021 for a total consideration
of P6,000,000. The net income for 2021 was P5,500,000. Because the preference shares are settled
on January 1, 2021, there is no requirement to pay preference dividends for 2021. What amount
should be reported as basic earnings per share for 2021?
a. 18.33
b. 15.00
c. 17.00
d. 13.67

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5. An entity had a net income of P15,000,000 for the current year. The following appropriations have
not been considered in this amount:
Arrears of cumulative preference dividend for 2 years 4,000,000
Ordinary dividends 5,000,000
Preference share premium payable on redemption 1,000,000
Exceptional gain net of tax 4,000,000
The entity had 400,000 ordinary shares of P100 par value outstanding at the beginning of the year.
What amount should be reported as basic earnings per share for current year?
a. 40.00
b. 30.00
c. 42.50
d. 35.00
6. An entity reported net income of P15,000,000 for the current year. The net income reflected an
income tax rate of 25%. The net income included a casualty loss P5,000,000 before income tax. The
entity showed the following shareholders’ equity at year-end:
Preference share capital 10% cumulative, P50 par value, 100,000 shares 5,000,000
Ordinary share capital, P100 par value, 300,000 shares issued 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 for current year?
a. 58.00
b. 60.00
c. 73.60
d. 48.33
7. An entity had one class of ordinary share capital outstanding and no other securities that are
potentially convertible into ordinary shares. The net income for 2022 was P6,000,000 and the net
income for 2021 was P3,600,000. During 2021, 120,000 shares were outstanding. In 2022, two
distributions of additional ordinary shares occurred:
April 1 - 40,000 treasury shares were sold.
July 1 - A 2 for 1 share split was issued.
1. What amount should be reported as basic earnings per share for 2022 in the comparative income
statement for 2022?
a. 25.00
b. 20.00
c. 18.75
d. 37.50
2. What amount should be reported as basic earnings per share for 2021 in the comparative income
statement for 2022?
a. 30.00
b. 15.00
c. 45.00
d. 22.50

8. On January 1, 2021, an entity had 300,000 ordinary shares outstanding, P100 par or a total par value
of P30,000,000. During 2021, the entity issued rights to acquire one ordinary share at P100 in the
ratio of one share for every 5 shares held. The rights are exercised on March 31, 2021. The market
value of each ordinary share immediately prior to March 31, 2021 was P160. The net income for
2021 was P6,000,000. What amount should be reported as basic earnings per share for 2021?
a. 17.14
b. 16.67
c. 18.75
d. 17.39
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