Mr. Ahmed is a fresh accounting graduate. He has been employed by a big industrial company...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Mr. Ahmed is a fresh accounting graduate. He has been employed by a big industrial company in the country: (Prime Company). The company is specialized in manufacturing primary care equipment for various entities in the country. The company is focused on the local market with about 90% of the sales are made for local entities. The company is listed on the local securities market. It is the end of 2019 and Mr. Ahmed was asked to calculate the basic and diluted earnings per share figures for the company. Given the importance of the earnings per share figure to the company and the market, as a performance measure, Mr. Ahmed was keen to do the job properly. Therefore, he started gathering relevant information to be able to calculate these two figures. The following is a summary of the information he gathered: 1. There were 2,500,000 shares outstanding at the beginning of 2019. 2. The company has preference share capital of $6,000,000 at the beginning of 2019. These were 9%, cumulative, convertible preference shares with $2 par value per share. The preference shares were issued at par. Each preference share is convertible into two ordinary shares. The conversion rate of preference shares must be adjusted for any share dividend or share split occurring during the year. On 1 May 2019, 250,000 preference shares have been converted into ordinary shares. Another 250,000 shares have been repurchased at cost on the same date. The remaining shares were outstanding until year-end. The preference dividend is paid every 4 months. 3. The company has two convertible debt instruments outstanding at the end of 2019 as follows: a. Convertible bond class (A): This is a $1,000,000 face value, 6%, 10-year bond that was issued on 1 January 2016. These bonds pay interest semi-annually and are convertible into 500,000 ordinary shares. The total issue price of the bond was $1,100,000. On 1 October 2019, the holders of the bonds converted 30% of them into ordinary shares. b. Convertible bond class (B): This is a $5,000,000 face value, 10%, 5-year bond that was issued on 1 October 2019. Each $10 bond is convertibles into two ordinary shares. The bonds pay interest annually. The total issue price of the bond was $6,000,000. 4. On 1 March 2019, the company declared and distributed a 20% share dividend to outstanding shareholders. 5. On 1 April 2019, The Company executed a 3:1 share spit on outstanding shares. 6. On 1 January 2019, the company granted its executives 120,000 options with an exercise price of $25 per share. The options are valid for two years and are considered for compensation purpose. The service period was estimated to be two years. The options were valued at $1,800,000. The following table summarizes the exercise/expiry of options during 2019: Date Percentage of options exercised Average market price per share (S) 1 July The average market price of ordinary shares on 31 December 2019 was $20 per share. 7. Net income for 2019 was $16,000,000. 8. The effective market rate was 8% and the tax rate was 25%. 20% 30 Questions: 1. The earnings per share figure is one of the most important accounting-based figures to be reported, especially for publicly listed companies such as Prime Company. Explain why. (Maximum 250 words). (3 marks) 2. Do you believe that the earnings per share is also important for private/non-public companies? Explain your answer (maximum 200 words) (2 marks) 3. Using the information in PART (A) above, calculate the following: a. The basic earnings per share for the year 2019. (Show all your calculations) (4 marks) b. The diluted earnings per share for the year 2019. (Show all your calculations) (7 marks) Mr. Ahmed is a fresh accounting graduate. He has been employed by a big industrial company in the country: (Prime Company). The company is specialized in manufacturing primary care equipment for various entities in the country. The company is focused on the local market with about 90% of the sales are made for local entities. The company is listed on the local securities market. It is the end of 2019 and Mr. Ahmed was asked to calculate the basic and diluted earnings per share figures for the company. Given the importance of the earnings per share figure to the company and the market, as a performance measure, Mr. Ahmed was keen to do the job properly. Therefore, he started gathering relevant information to be able to calculate these two figures. The following is a summary of the information he gathered: 1. There were 2,500,000 shares outstanding at the beginning of 2019. 2. The company has preference share capital of $6,000,000 at the beginning of 2019. These were 9%, cumulative, convertible preference shares with $2 par value per share. The preference shares were issued at par. Each preference share is convertible into two ordinary shares. The conversion rate of preference shares must be adjusted for any share dividend or share split occurring during the year. On 1 May 2019, 250,000 preference shares have been converted into ordinary shares. Another 250,000 shares have been repurchased at cost on the same date. The remaining shares were outstanding until year-end. The preference dividend is paid every 4 months. 3. The company has two convertible debt instruments outstanding at the end of 2019 as follows: a. Convertible bond class (A): This is a $1,000,000 face value, 6%, 10-year bond that was issued on 1 January 2016. These bonds pay interest semi-annually and are convertible into 500,000 ordinary shares. The total issue price of the bond was $1,100,000. On 1 October 2019, the holders of the bonds converted 30% of them into ordinary shares. b. Convertible bond class (B): This is a $5,000,000 face value, 10%, 5-year bond that was issued on 1 October 2019. Each $10 bond is convertibles into two ordinary shares. The bonds pay interest annually. The total issue price of the bond was $6,000,000. 4. On 1 March 2019, the company declared and distributed a 20% share dividend to outstanding shareholders. 5. On 1 April 2019, The Company executed a 3:1 share spit on outstanding shares. 6. On 1 January 2019, the company granted its executives 120,000 options with an exercise price of $25 per share. The options are valid for two years and are considered for compensation purpose. The service period was estimated to be two years. The options were valued at $1,800,000. The following table summarizes the exercise/expiry of options during 2019: Date Percentage of options exercised Average market price per share (S) 1 July The average market price of ordinary shares on 31 December 2019 was $20 per share. 7. Net income for 2019 was $16,000,000. 8. The effective market rate was 8% and the tax rate was 25%. 20% 30 Questions: 1. The earnings per share figure is one of the most important accounting-based figures to be reported, especially for publicly listed companies such as Prime Company. Explain why. (Maximum 250 words). (3 marks) 2. Do you believe that the earnings per share is also important for private/non-public companies? Explain your answer (maximum 200 words) (2 marks) 3. Using the information in PART (A) above, calculate the following: a. The basic earnings per share for the year 2019. (Show all your calculations) (4 marks) b. The diluted earnings per share for the year 2019. (Show all your calculations) (7 marks)
Expert Answer:
Answer rating: 100% (QA)
Question No01 For Public Companies the Market Share Price is dependent on the EPS of the Company Ear... View the full answer
Related Book For
Concepts in Federal Taxation
ISBN: 9780324379556
19th Edition
Authors: Kevin E. Murphy, Mark Higgins, Tonya K. Flesher
Posted Date:
Students also viewed these accounting questions
-
You have been asked to calculate the basic and diluted earnings per share figures for Al Rihab Company. The following information are valid by the end of 2019: There were 2,900,000 shares outstanding...
-
Diluted EPS. Can diluted earnings per share on bottom-line net income or net loss exceed basic earnings per share? Explain.
-
Ms. Marsh has been employed by the Ace Distributing Company for the past three years. During 2019, the following amounts were credited to Ms. Marsh's payroll account: Salary of $40,500 as per her...
-
Boeing Company was scheduled to deliver several of its 747-400 jumbo jetliners to Northwest Airlines by December 31, 1988. Northwest set that deadline because it needed the $16 million in investment...
-
What arguments are made in favor or protectionism practices?
-
AB Ltd manufactures units for drills. All units are identical. The following working capital requirements are budgeted: Notes: 1 Each month is assumed to consist of four working weeks. 2 Wages are...
-
Based on flowrate and pressure rise information, estimate the power output of a human heart.
-
When an ERP implementation fails, who is to blame? Is it the software manufacturer, the client firm, or the implementation strategy? Required Research this issue and write a brief paper outlining the...
-
Carla Vista manufactures mountain bikes. Its sales mix and contribution margin information per unit are as follows: Sales Mix Contribution Margin Destroyer 14% $130 Voyager 62% 62 Rebel 24% 48 It has...
-
On May 1, 2015, Peters Company purchased 80% of the common stock of Smith Company for $50,000. Additional data concerning these two companies for the years 2015 and 2016 are: Any difference between...
-
Good Life Pte Ltd (Good Life) has been carrying on a business in Singapore of selling health supplements from Australia since 1 February 2014. It obtained its Goods and Services Tax (GST)...
-
According to Mark Adams in "The Coffee Junkie's Guide to Caffeine Addiction" New York Times: Does caffeine actually make the user more awake/alert? Why or why not? What are the consequences of daily...
-
ACC-1125 x M Question 4 Ch 910 1-4 Cox On January 2 20x1, Volantina v ezto mheducation.com/ext/map/index.html?, conscon&external browser-0&daunchUrl=https%253A%252F%252Fims mheducation.com%252Fm....
-
O'Hara Pan Enterprise is a retailer of kitchen items like cabinets, pots, pans etc. It is owned by Ann-Kam Eng. Besides sales, it conducts healthy cooking lessons. O'Hara Pan's assets and liabilities...
-
If a parallax error were to cause the final temperature to be recorded as 0.5C too high in the first run for copper, how much of a difference would that make in the calculation of % error? Show...
-
Hawkins Company sells two product lines. The sales mix of the product line is: Standard, 65%; and Deluxe, 35%. The contribution margin ratio of each line is: Standard, 50%; and Deluxe, 55%. Hawkins...
-
Consider a vector space with the basis vectors e = +k, = +k and e3 = 1 - (not orthonormal) a) Derive the components of vectors a = 2 - 4 + 5k and b = i + 2 - 3k in the new basis (e) by using the...
-
Repeat the previous problem, but close the positions on September 20. Use the spreadsheet to find the profits for the possible stock prices on September 20. Generate a graph and use it to identify...
-
Return to the facts of problem 67. Assume that Louise sells the stock on October 31, 2012, for $35 per share. Determine the tax consequences for Louise and Somerton on the date of sale.
-
For each of the dependents in problem 59, calculate the income tax on their taxable income. In each case, assume that their parents taxable income is $128,000.
-
At the beginning of 2011, Heather owns the following stocks: In addition to these stocks, Heather received 400 shares of Poor Boy preferred stock from her grandfather as a gift on December 25, 2010....
-
Explain any four types of statistical analysis and their underlying statistical concepts. Describe how each of them has a unique role in the data analysis process.
-
Located in Tokyo, Japan, Sony Mobile Communications is a prominent competitor in the worldwide electronics equipment market. Because of stagnant sales in its ultra HD TVs, that division has decided...
-
Cory Rogers of CMG Research was happy to call Nick Thomas to inform him that Auto Concepts survey data were collected and ready for analysis. Of course, Cory had other marketing research projects and...
Study smarter with the SolutionInn App