PROBLEM 1

a.
Shares
Item Date Restatement Fraction of the Year
Outstanding
Beginning balance 1 Jan - 1 Feb 480,000 1.2 x 3 1/ 12
Issuance 1 Feb - 1 Mar 600,000 1.2 x 3 1/ 12
Share dividend 1 Mar - 1 May 720,000 3 2/ 12
Treasury purchase 1 May - 1 Jun 620,000 3 1/ 12
Share split 1 Jun - 1 Oct 1,860,000 4/ 12
Treasury sale 1 Oct - 31 Dec 1,920,000 3/ 12
Weighted Average of Shares Outstanding

b.
Basic EPS = 3.256.000.000 / 1.939.000
1,679.22

c.
Basic EPS = (3.256.000.000 - 900.000) / 1.939.000
1,678.75

d.
Income from continuing operations 3,688,000,000
Loss from discontinued operations (432,000,000)
Net income 3,256,000,000

EPS
Income from continuing operations 1,902.01
Loss from discontinued operations (222.80)
Net income 1,679.22
WASO

144,000
180,000
360,000
155,000
620,000
480,000
1,939,000
PROBLEM 2

a.
Weighted-average shares outstanding (for basic EPS)
Shares Time
Dates WASO
Outstanding Factor
1 Jan - 1 Apr 800,000 0.25 200,000
1 Apr - 31 Dec 1,400,000 0.75 1,050,000
Weighted-average shares outstanding 1,250,000

Weighted-average shares outstanding (for diluted EPS)

- WASO (basic) 1,250,000
- Potential issuance 24,000 (600.000 / 1.000 * 40)
- Time factor 0.5 (6/12)
12,000
Adjusted WASO 1,262,000

b.
Net income (for basic EPS) 1,540,000

Net income (for diluted EPS)

- Net income 1,540,000
- Interest savings 18,000 30.000 x (1-40%)
Adjusted net income 1,558,000
PROBLEM 3

a.
Diluted EPS = [Net income + Interest savings (net of tax)] / Adjusted WASO

Adjusted Net Income

- Net income 240,000
- Interest savings 126,000 210.000 x (1 - 40%)
Adjusted NI 366,000

Adjusted WASO
- Shares outstanding 100,000
- Potential issuance 45,000 Assuming the bonds were converted. (3.000.000/1.000*15)
Adjusted WASO 145,000

Diluted EPS 2.52

b.
Diluted EPS = Net income / Adjusted WASO

Net income 240,000

Adjusted WASO
- Shares outstanding 100,000
- Potential issuance 50,000 Assuming the preference shares were converted. (1.000.000/100*5)
Adjusted WASO 150,000

Diluted EPS 1.60

000.000/100*5)
PROBLEM 4

a.
Net income 40,000

Shares outstanding 10,000

Adjustments:
- Potential issuance 1,000
- Proceeds (@ $8) $ 8,000
- Less: T/S purchase (@ $20) (400)
Incremental shares 600

Adjusted WASO 10,600

Diluted EPS = 40.000 / (10.000 + 600)

$ 3.77

b.
Net income 40,000

Shares outstanding 10,000

Adjustments:
- Potential issuance 1,000
- Proceeds (@ $8) $ 8,000
- Less: T/S purchase (@ $20) (400)
600 (From 1 October to 31 December, so 3/12)
- Time factor 0.25
Incremental shares 150

Diluted EPS = 40.000 / (10.000 + 150)

$ 3.94
PROBLEM 5

a.

Since Donovan has passed the income test for 2020 (by achieving income of
$125,000 against a target of $110,000), the contingent shares must be considered for
EPS calculation.

b.

Since Donovan has failed the income test for 2020 (by achieving income of $125,000
against a target of $130,000), the contingent shares must not be considered for EPS
calculation.
PROBLEM 6

a. Basic earnings per share

Net income € 1,500,000
Preference dividends € 75,000 (6% x 50 x 25.000)
WASO 1,000,000

Basic EPS € 1.425

b. Diluted earnings per share

Options
- Potential issuance 200,000
- Proceeds (@ €15) € 3,000,000
- Less: T/S purchase (150,000)
Incremental shares 50,000 Affects WASO

Convertible Bonds
- Interest savings € 270,000 Affects NI. (450.000 * (1-40%))
- Potential issuance 250,000 Affects WASO. (5.000.000/1.000*50)

Diluted EPS = (1.500.000 - 75.000 + 270.000) / (1.000.000 + 50.000 + 250.000)

€ 1.304