Leviq Enterprises Ltd. has a tax rate of 40% and reported net income of $8.5 million in 2011. The following details are from the balance sheet of Leviq as at December 31, 2011, the end of its fiscal year:
Other information:
1. Quarterly dividends were declared on March 1, June 1, September 1, and December 1 for the preferred shares and paid 10 days after the date of declaration.
2. Dividends paid on common shares amounted to $980,000 during the year and were paid on December 20, 2011.
3. Interest expense on bonds payable totalled $1,465,000, including bond discount amortization, which is recorded using the effective interest amortization method.
4. There were no issuances of common shares during the 2011 fiscal year, and no conversions.
(a) Determine the amount of interest expense incurred in 2011 for each of the bonds outstanding at December 31, 2011.
(b) Calculate basic earnings per share for 2011.
(c) Determine the potential for dilution for each security that is convertible into common shares.
(d) Calculate diluted earnings per share for 2011.
(e) What is the significance of the preferred share dividends being paid quarterly? What impact, if any, does this frequency in payment have on the calculation of diluted earnings per share?

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