Solutions to selected problems from the text -- Chapter 15

Solutions to selected problems from the text -- Chapter 15...

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COMMERCE 450 FALL 2011 SOLUTIONS TO SELECTED PROBLEMS FROM THE TEXT CHAPTER 15 SOLUTIONS ARE PROVIDED TO THE FOLLOWING PROBLEMS: 15-13 15-17 15-19 15-26 15-30 P15-13. Suggested solution a. Date (2014) Activity Shares O/S (A) Adj. factor (B) Fraction of year (C) WASO (A × B × C) Jan. 1–Jan. 31 Opening balance 60,000 (1) 2.0 (4) 1/12 10,000 Feb. 1– May 31 Issued 15,000 shares 75,000 2.0 (4) 4/12 50,000 June 1– Aug. 31 Repurchas ed 20,000 shares 55,000 (2) 2.0 (4) 3/12 27,500 Sept. 1– Sept. 30 Reissued 20,000 shares held in treasury 75,000 (2) 2.0 (4) 1/12 12,500 Oct. 1– Dec. 31 Two-for- one stock split 150,000 (3) (5) 3/12 37,500 Weighted average number of ordinary shares outstandi ng 137,500 Supporting comments and computations (1) From 2013: 50,000 + 10,000 = 60,000 (2) The fact that the repurchased shares are held in treasury is irrelevant as we are interested in outstanding shares, not issued shares (3) 75,000 × 2 = 150,000 (4) For WASO purposes we assume that the stock split took place at the beginning of the year. We adjust for this by multiplying the actual number of shares outstanding by 2 (2:1 stock split) (5) As the outstanding number of shares includes those issued in the stock split, we need not make any further adjustments.
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b. Calculation of basic EPS Net income $500,000 Less: Preferred dividends – cumulative – amount of entitlement 50,000 × $100 × 4% (200,000) – non-cumulative – amount declared $60,000 + $60,000 (120,000 ) $180,000 Basic EPS $180,000 / 137,500 $1 .31
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P15-17. Suggested solution: a. Diluted EPS = (Net income available to ordinary shareholders + the income effect of dilutive potential ordinary shares) / (Weighted average number of ordinary shares outstanding + the share effect of dilutive potential ordinary shares). b. Dilutive potential ordinary shares (POS) are financial instruments or agreements that if exercised would result in basic EPS decreasing. Antidilutive POS are financial instruments or agreements that if exercised would result in basic EPS increasing. Dilutive POS are included in
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Solutions to selected problems from the text -- Chapter 15...

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