USE THE INFORMATION GIVEN BELOW IN THIS SEGMENT TO ANSWER QUESTIONS .

Yellow Electrical Systems, Inc., [YES] has set up a list of questions pertaining to some its intended scenarios. Each scenario is independent of the others (unless otherwise stated) and all transactions are to be dealt with under the application of IFRS. Be sure to round off all your answers to the nearest cent.

Assume YES reported income from operations of $3,780,960 in 2017. It did not declare any common dividends during the year. However it did declare preferred dividends of $1,080,000 on December 20 but did not pay these till January 12, 2018. It began the year with 132,000 common shares outstanding and issued 720,000 common shares on April 1. On June 15 a 20% stock dividend was declared. On November 1, it repurchased 72,000 shares and cancelled them. Determine the companys basic EPS for the year.

a.

$4.76.

b.

$3.74.

c.

$4.48.

d.

$2.84

e.

$3.40.

YES began the year, 2019 with 200,000 shares of common stock and 30,000 shares of 7%, $100 par value, cumulative, nonconvertible preferred stock. On March 1 it declared a 5% stock dividend on common shares. On September 30, it purchased 20,000 common shares and cancelled them. On October 1, YES declared a 2-for-one stock split. Operating income for the year was $762,600 and no dividends for 2019 were declared. However, it did pay on January 12, the preferred dividends which had been declared on December 20, 2018. Compute the weighted average number of common shares and the basic EPS for the year.

a.

2,660,000 shares and $14.07.

b.

380,000 shares and $1.45.

c.

2,870,000 shares and $9.45.

d.

410,000 shares and $1.35.

e.

For this question only, assume that YES had granted 45,000 stock options (put options) to some of its executives, and each option gave the holder the right to sell to YES, one share at the option price of $37 per share. None of these options have yet been exercised throughout 2019. The average market price of the common shares of YES during 2019 was $20. Using the reverse treasury stock method (i.e., cash out/cash in), what is the impact on the number of shares that should be used in calculating diluted earnings per share for 2019?

a.

20,676 shares.

b.

16,650 shares.

c.

38,250 shares.

d.

The number of shares cannot be determined with the information given.

e.

None of the above.

YES reported five securities outstanding on January 1, 2019. There were no equity related transactions during the year and thus these remained unchanged throughout the year. You are provided the following particulars about the basic EPS plus the incremental effect per share required for the calculation of diluted EPS for each of the five securities are listed below:

Adjusted Income ($) Shares

Basic EPS $1,519,000 350,000

Security Change In Income Change In Shares

Call Options $0 21,000

Convertible Bonds $147,000 36,750

Convertible Preferred Shares $56,000 42,000

Put Options $0 (2,800)

Warrants $0 70,000

List all securities, highest to lowest, in the order of potential dilutiveness and assign the appropriate rank for each security.

a.

Call Options [R1], Put Options [R1], Warrants [R1], Convertible Bonds [R2], are all potentially dilutable securities; and Convertible Preferred Shares, being an equity component becomes anti-dilutive and is to be excluded.

b.

Call Options [R1], Put Options [R1], Warrants [R1] and Convertible Preferred Shares [R2] are all potentially dilutable securities; and Convertible Bonds [R2] being a long-term debt is reported annually at fair market value becomes anti-dilutive and so is to be excluded.

c.

Call Options [R1], Warrants [R1], Put Options [R1], Convertible Preferred Shares [R2], Convertible Bonds [R3] are all potentially dilutable securities; and none of the securities should be excluded.

d.

Call Options [R1], Warrants [R1], Convertible Preferred Shares [R2], Convertible Bonds [R3] are all potentially dilutable securities; and Put Options, being anti-dilutive are to be excluded.

e.

Call Options, Warrants and Put Options should be excluded as they do not contribute to income; and Convertible Preferred Shares [R1] and Convertible Bonds [R2] are both potentially dilutable securities.

Use the information in [61] above to determine the diluted EPS and identify if any of the securities are excluded from the computation. [Round your final answers to the nearest cent].

a.

The diluted EPS is $4.00 . The Put Options are excluded as they are anti-dilutive.

b.

The diluted EPS is $3.77 . The three options are to be excluded as IFRS requires all derivative securities to be excluded from the calculation of diluted EPS.

c.

The diluted EPS is $3.24 being the same as the Basic EPS. All of the five securities are to be excluded since they have not actually been converted and are only assumed to have been converted. IFRS does not allow reporting based upon mere assumptions.

d.

The diluted EPS is $3.26 . The Put Options and the Convertible Bonds are excluded as they are anti-dilutive.

e.

None of the above are correct.

YES reported $877,000 as income from operations and 200,000 shares as weighted average common shares in 2017. YES also reported outstanding, 27,000 of 6%, $100 par value, non-cumulative, nonconvertible preferred shares. The company had not declared any dividends for either the current year or the previous year.

Further, it had issued 1,500 8% , long-term convertible bonds, par value of $1,000 each. These bonds had been issued several years ago and were still outstanding as at January, 2017. Each bond can be converted into 40 common shares. No amount of the bond issue was credited towards contributed surplus-conversion. The annual tax rate for 2017 was 40%.

On September 1, bondholders of 25% of the outstanding bonds converted them. YES had no other potentially dilutive securities and no other conversions occurred during the year. The denominators for calculating the basic EPS and the diluted EPS would be

a.

200,000 shares and 215,000 shares.

b.

205,000 shares and 215,000 shares.

c.

200,000 shares and 255,000 shares.

d.

260,000 shares and 215,000 shares.

e.

None of the above.