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:

1. There were 2,900,000 shares outstanding at the beginning of 2019.
2. The company has preference share capital of $7,500,000 at the beginning of 2019. These were 8%, cumulative, convertible preference shares with $3 par value per share. Each preference share is convertible into THREE ordinary shares. The conversion rate must be adjusted for any share dividend or share split occurring during the year. On May 1, 2019, 300,000 preference shares have been converted into ordinary shares. Another 300,000 shares have been repurchased at cost on the same date. The remaining shares were outstanding till year end. The preference dividend is paid every 2 months.
3. The company has two convertible debt instruments outstanding at the end of 2019 as follows:
   1. 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 40% of them into ordinary shares.
   2. Convertible bond class (B): This is a $5,000,000 face value, 10%, 5-year bond that was issued on 1 October, 2019. Each $100 bond is convertible 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 15% share dividend to outstanding shareholders.
5. On 1 April 2019, the company executed a 3:1 share split on outstanding shares.
6. On 1 January 2019, the company granted its executives a total of 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 exercise/expiry of options is assumed to take place semi-annually on 1 July and 1 January of each year. The average market price of ordinary shares on 1 July, 2019 and 31 December 2019 was $30 per share and $20 per share, respectively.

7. Net income for 2019 was $18,000,000.

8. The effective market rate was 8% and the tax rate was 20%.

Required:

1. Using the information in PART (B) above, calculate the following:

a. The basic earnings per share for the year 2019. (Show all your calculations)

b. The diluted earnings per share for the year 2019. (Show all your calculations)

Answer rating: 100% (QA)

1 a The basic earnings per share for the year 2019 is calculated as follows Net income for 2019 ... View the full answer