An excerpt from the balance sheet of Denomme Limited follows Notes
An excerpt from the balance sheet of Denomme Limited follows:
Notes and Assumptions
December 31, 2011
1. Options were granted/written in 2010 that give the holder the right to purchase 50,000 common shares at $12 per share. The average market price of the company’s common shares during 2011 was $18 per share. The options expire in 2019 and no options were exercised in 2011.
2. The 4% bonds were issued in 2010 at face value. The 6% convertible bonds were issued on July 1, 2011, at face value. Each convertible bond is convertible into 80 common shares (each bond has a face value of $1,000).
3. The convertible preferred shares were issued at the beginning of 2011. Each share of preferred is convertible into one common share.
4. The average income tax rate is 42%.
5. The common shares were outstanding during the entire year.
6. Preferred dividends were not declared in 2011.
7. Net income was $1,750,000 in 2011.
8. No bonds or preferred shares were converted during 2011.
(a) Calculate basic earnings per share for 2011.
(b) Calculate diluted earnings per share for 2011. For simplicity, ignore the requirement to record the debt and equity
components of the bonds separately.
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