17-Solution to P17-13 - calculation of diluted earnings per...

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PROBLEM 17-13 (a) Dates Outstanding Shares Outstanding Fraction of Year Weighted Shares 1/1–6/30 7/1– 12/31 1,000,000 1,100,000 6/12 6/12 500,000 550,000 1,050,000 Basic EPS = 1,050,000 $1,298,678 = $1.24 Proceeds from assumed exercise of 10,000 options (10,000 X $30) $300,000 Shares issued upon exercise 10,000 Treasury shares purchasable ($300,000 ÷ $35) 8,571 Incremental shares 1,429 Incremental shares pro-rated to 6/12 714 Diluted EPS = 714 1,050,000 $1,298,678 + = $1.24 The put options are not in the money since the company would be able to buy the shares at $25, which is lower than the market price of $35. The put options are not included in the calculation of diluted earnings per share. The purchased options are antidilutive since they will only be exercised when they are in the money and this will always be favourable to the company. They are therefore not included in the
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Unformatted text preview: calculation of diluted earnings per share. PROBLEM 17-13 (Continued) For purposes of the calculating the individual earnings per share for the convertible bonds, to decide if there may be further dilution, the bonds are assumed to have been converted January 1, 2011. The income effect would be to add back the after tax cost of the interest saved of $250,000 and the denominator effect is to increase the number of shares by 50,000 (100,000 shares X 6/12). This yields an EPS of $5.00 ($250,000 / 50,000) which is antidilutive and therefore excluded. (b) Earnings per common share : Basic earnings per share $1.24 Diluted earnings per share $1.24 Disclaimer: For simplicity, ignore the IFRS requirement to record the debt and equity components of the bonds separately....
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17-Solution to P17-13 - calculation of diluted earnings per...

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