Question

Denise Laframboise is the controller at Yeung Pharmaceutical Industries, a public company. She is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Yeung’s external financial statements. The following is selected financial information for the fiscal year ended June 30, 2011:
YEUNG PHARMACEUTICAL INDUSTRIES
Selected Statement of Financial Position Information
June 30, 2011
The following transactions have also occurred at Yeung:
1. Options were granted by the company in 2009 to purchase 100,000 shares at $15 per share. Although no options were exercised during 2011, the average price per common share during fiscal year 2011 was $20.
2. Each bond was issued at face value. The 7% convertible debenture will convert into common shares at 50 shares per $1,000 bond. It is exercisable after five years and was issued in 2010. Ignore any requirement to record the bonds’ debt and equity components separately.
3. The $4.25 preferred shares were issued in 2009.
4. There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2011.
5. The 1 million common shares were outstanding for the entire 2011 fiscal year.
6. Net income for fiscal year 2011 was $1.5 million, and the average income tax rate was 40%.
Instructions
(a) For the fiscal year ended June 30, 2011, calculate the following for Yeung Pharmaceutical Industries:
1. Basic earnings per share
2. Diluted earnings per share
(b) Explain how premiums and discounts on outstanding convertible bonds affect the calculation of diluted earnings per share.


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  • CreatedAugust 23, 2015
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