Mr. Kashz arrived at the dot of ten as agreed upon at your door. That was...

 

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Mr. Kashz arrived at the dot of ten as agreed upon at your door. That was an expensive, sporty looking and impressive Tesla he was driving. After exchanging some preliminary pleasantries, coffee and some snacks, you both get to work. He informs you that he would like you to assist him on some of the more troubling issues remaining to be resolved for some of his companies. Initially, you were to advice him in some areas of sharcholder equity and Earnings per Share. "I always think big and so for the most part, assume that these firms were to use IFRS," he added. He explained that his investment firm had recently taken over the business of Bind-Vell, Inc., a startup which had developed and patented some of the finest adhesive and sealing products which were to be offered in the production of cars, planes and spaceships. The company, under the new ownership, commenced its business in the calendar year of 2018 with an authorized capital of 10,000,000 common shares and 2,000,000 8% convertible preferred shares. Each preferred shares could be converted into 3 common shares. Assume that the preferred shares were cumulative and were eligible to receive dividends quarterly on March 31, June 30, September 30 and December 31 if declared. On January 1, 2020, the company reported as outstanding, 50,000 preferred shares with a contributed capital of $5,000,000 and 280,000 common shares Mr. Kashz provided you with the following additional information on the company's equity and debt transactions for the year: * February 1: Issued 168,000 common shares. r March 1: Declared a 20% stock dividend. r April 1: 60% of the outstanding preferred shares were converted by the share holders into common shares. w May 1: Issued 48,000 to settle an existing loan from the company's bank. * June 1: Acquired 12,000 shares from the market and immediately cancelled them. w The company had not declared any dividends since it was acquired. It had decided to also skip dividends for 2020. w The company reported convertible debt at the end of the year. These were bonds payable, issued at par on August 1, 2020, for $4,500,000 with interest payable at 4% on December 31. Each $1,000 par value bond could be converted into 7 common shares of the company. * Income is taxed at a rate of 35%. * Then Mr. Kashz referred to two types of options which had existed when the company had been acquired and these were still outstanding as at January 1, 2020. Put options had been issued to employees which entitled holders to sell 148,000 of the company's common shares to the company for S15.00 cach. Call options had been issued to the management team which enabled them to buy 136,000 common shares at SI1.00 each. The shares had traded at an annual average price of $19.00 cach during 2018. Assume the market price was duly adjusted for all stock dividends and stock splits. All options remained outstanding at the end of 2020. * And finally, the company reported net income of $422,400. There was nothing to report for Discontinued Operations. "Let us break for lunch and continue the meeting upon returning," suggested Mr. Kashz as he glanced at his watch. He hands you a list of questions for which he wanted some clear answers and explanations. And to lunch you both procceded. REQUIRED: a. Determine the weighted average number of shares to determine the basic earnings per share for 2020. b. Determine the basic earnings per share for 2020, assuming (i) the preferred shares were cumulative. Mr. Kashz was curious why the company had to allow for dividends to the preferred shareholder group despite the fact that the company had not declared any dividends to them. (ii) the preferred shares were not cumulative. c. Identify the potentially dilutive securities which could be included in the computation of diluted carnings per share. Be sure to support your answer with detailed computations and rank these securities where required. d. Determine the diluted earnings per share to be reported by the company in 2020 assuming preferred shares were cumulative. e. For this part only, assume that the net income of $422,400 was as stated above but included an after-tax gain of S135,200 from discontinued operations. Assume the preferred shares were cumulative. Determine the basic and diluted earnings per share to be disclosed for 2020 and show how they would be reported. (Hint: recalculate the basic and diluted earnings per share for both continuing and discontinued operations). f. Eor this part only, assume that the company declared a 3 for I stock split on January 10, 2021. The financial statements had been issued to the public on February 15, 2021. What would be the revised weighted average number of shares for determining the basic carnings per share. Mr. Kashz arrived at the dot of ten as agreed upon at your door. That was an expensive, sporty looking and impressive Tesla he was driving. After exchanging some preliminary pleasantries, coffee and some snacks, you both get to work. He informs you that he would like you to assist him on some of the more troubling issues remaining to be resolved for some of his companies. Initially, you were to advice him in some areas of sharcholder equity and Earnings per Share. "I always think big and so for the most part, assume that these firms were to use IFRS," he added. He explained that his investment firm had recently taken over the business of Bind-Vell, Inc., a startup which had developed and patented some of the finest adhesive and sealing products which were to be offered in the production of cars, planes and spaceships. The company, under the new ownership, commenced its business in the calendar year of 2018 with an authorized capital of 10,000,000 common shares and 2,000,000 8% convertible preferred shares. Each preferred shares could be converted into 3 common shares. Assume that the preferred shares were cumulative and were eligible to receive dividends quarterly on March 31, June 30, September 30 and December 31 if declared. On January 1, 2020, the company reported as outstanding, 50,000 preferred shares with a contributed capital of $5,000,000 and 280,000 common shares Mr. Kashz provided you with the following additional information on the company's equity and debt transactions for the year: * February 1: Issued 168,000 common shares. r March 1: Declared a 20% stock dividend. r April 1: 60% of the outstanding preferred shares were converted by the share holders into common shares. w May 1: Issued 48,000 to settle an existing loan from the company's bank. * June 1: Acquired 12,000 shares from the market and immediately cancelled them. w The company had not declared any dividends since it was acquired. It had decided to also skip dividends for 2020. w The company reported convertible debt at the end of the year. These were bonds payable, issued at par on August 1, 2020, for $4,500,000 with interest payable at 4% on December 31. Each $1,000 par value bond could be converted into 7 common shares of the company. * Income is taxed at a rate of 35%. * Then Mr. Kashz referred to two types of options which had existed when the company had been acquired and these were still outstanding as at January 1, 2020. Put options had been issued to employees which entitled holders to sell 148,000 of the company's common shares to the company for S15.00 cach. Call options had been issued to the management team which enabled them to buy 136,000 common shares at SI1.00 each. The shares had traded at an annual average price of $19.00 cach during 2018. Assume the market price was duly adjusted for all stock dividends and stock splits. All options remained outstanding at the end of 2020. * And finally, the company reported net income of $422,400. There was nothing to report for Discontinued Operations. "Let us break for lunch and continue the meeting upon returning," suggested Mr. Kashz as he glanced at his watch. He hands you a list of questions for which he wanted some clear answers and explanations. And to lunch you both procceded. REQUIRED: a. Determine the weighted average number of shares to determine the basic earnings per share for 2020. b. Determine the basic earnings per share for 2020, assuming (i) the preferred shares were cumulative. Mr. Kashz was curious why the company had to allow for dividends to the preferred shareholder group despite the fact that the company had not declared any dividends to them. (ii) the preferred shares were not cumulative. c. Identify the potentially dilutive securities which could be included in the computation of diluted carnings per share. Be sure to support your answer with detailed computations and rank these securities where required. d. Determine the diluted earnings per share to be reported by the company in 2020 assuming preferred shares were cumulative. e. For this part only, assume that the net income of $422,400 was as stated above but included an after-tax gain of S135,200 from discontinued operations. Assume the preferred shares were cumulative. Determine the basic and diluted earnings per share to be disclosed for 2020 and show how they would be reported. (Hint: recalculate the basic and diluted earnings per share for both continuing and discontinued operations). f. Eor this part only, assume that the company declared a 3 for I stock split on January 10, 2021. The financial statements had been issued to the public on February 15, 2021. What would be the revised weighted average number of shares for determining the basic carnings per share.

Answer rating: 100% (QA)

a 581300 b I 073 ii 073 Preference shareholders are called preference because they have the preferred right as to dividends Therefore they are the first group to receive the dividends that is why they ... View the full answer