Chapter 17 - Supplementary Question

Question 1:
Company A had 200,000 ordinary shares on Jan. 1. The company issued 10,000 new shares on
April 1. On June 1, the ordinary shares were split 2 for 1. On Oct. 1, the company met contingency
conditions that led to 10,000 new ordinary shares being issued on Dec. 1.

Required:
1. Calculate the weighted average number of shares for the year ended Dec. 31.
2. Calculate the basic EPS assuming that the company had earnings of $300,000 and declared
non-cumulative preference share dividends of $25,000 during the year.

Question 2:
Ice King Products Incorporated reported after-tax profit of $6.5 million in 20X5. Its capital
structure included the following as of 31 December 20X5, the end of the company's fiscal year:

Shareholders' equity:
• Preferred shares, $4.50, no-par, cumulative, convertible into common shares at the rate of
two common shares for each preferred share, shares outstanding, 150,000
• Preferred shares, $2.50, no-par, cumulative, convertible into common shares at the rate of
one common share for each preferred share, shares outstanding, 400,000
• Common shares, shares outstanding, 1,500,000

Options to purchase common shares (options have been outstanding all year):
• Purchase price, $20; expire 20X11, 100,000 options
• Purchase price, $52; expire 20X14, 200,000 options
Each option allows the purchase of one share.

Transactions during 20X5:

• On 1 July, 400,000 common shares were issued on the conversion of 200,000 of the
$4.50 preferred shares.
• On 1 December, 100,000 common shares were issued for cash.

Additional information:
• Average common share price, stable during the year, $40
• Tax rate, 25%
• Quarterly dividends were declared on 31 March, 30 June, 30 September, and 31
December

Required:
Calculate basic and diluted earnings per share.

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 Chapter 17 - Supplementary Question

Question 3:
The shareholders' equity of Cameron Corporation as of 31 December 2020, the end of the
current fiscal year, is as follows:

Additional information:

• On 1 July 2020, 150,000 preferred shares were converted to common shares at the rate of
4- for-1.
• During 2020, Cameron had convertible subordinated debentures outstanding with a face
value of $4,000,000. The debentures are due in 2026, at which time they may be converted
to common shares or repaid at the option of the holder. The conversion rate is 12 common
shares for each $100 debenture. Interest expense of $175,000 was recorded in 2020.
• The convertible preferred shares had been issued in 2014. Quarterly dividends, on 31
March, 30 June, 30 September, and 31 December, have been regularly declared.
• The company's 2020 net earnings were $2,289,000, after tax at 30%. Common shares traded
for an average price of $18, stable in each quarter of the year.
• Cameron had certain employee stock options outstanding all year. The options were to
purchase 600,000 common shares at a price of $14 per share. The options become
exercisable in 2027.
• Cameron had another 100,000 employee stock options outstanding on 1 January 2020, at an
exercise price of $22. They expired on 30 June 2020.

Required:
Compute Cameron’s basic and diluted EPS for the year ended December 31, 2020.

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