Chapter 06

Shareholders’ Equity – Earnings Per Share

Weighted Average Outstanding Ordinary
1) Aludino Corporation had 1,000 ordinary shares issued and outstanding at January 1. During the year, Aludino
Corporation also had the ordinary share transactions listed below:

April 1 Issued 300 previously unissued shares.

May 1 Split the shares 2-for-1
June 30 Purchased 100 treasury shares.
July 30 Distributed a 20% bonus issue.
December 31 Split the shares 3-for-1
What is the weighted average number of shares that Aludino should use for earnings per share purposes?
A. 9,720
B. 8,820
C. 8,640
D. 2,880

Basic EPS – Non Cumulative PS

2) Safeguard Company reported the following capital structure on January 1, 2022:

Ordinary share capital, shares issued and outstanding 200,000 shares

Preference share capital, shares issued and outstanding 50,000 shares
On October 1, 2022, the entity issued a 10% stock dividend on ordinary shares and paid the annual cash dividend
of P200,000 on preference shares. The preference shares are noncumulative, nonparticipating and nonconvertible.
The net income for the current year was P1,920,000.

What amount should be reported as basic earnings per share?

A. 8.20
B. 8.72
C. 9.36
D. 7.82

Basic EPS – Cumulative PS

3) Bianca Company had the following capital during 2020:

Preference share capital, P100 par, 10% cumulative, 30,000 shares 3,000,000
Ordinary share capital, P100 par, 50,000 shares 5,000,000
The entity reported net income of P4,000,000 for the current year. There are no preference dividends in arrears on
December 31, 2018. The entity paid no preference dividends during 2019 and paid P500,000 in preference
dividends during 2020.

What amount should be reported as basic earnings per share for 2020?
A. 74
B. 80
C. 70
D. 68

Basic EPS – Loss

4) Boo Company had the following ordinary share activity during the current year:
January 1 Outstanding 150,000 shares
May 1 New shares issued 30,000 shares
July 1 Treasury shares acquired 12,000 shares
December 1 Treasury shares resold 6,000 shares
The entity had 100,000 cumulative preference shares outstanding during the year. The preference share has par
value of P50 and 12% dividend rate. The entity sustained a net loss of P2,690,000 for the current year.

What is the basic loss per share?

A. 12.71
B. 16.35
C. 18.64
D. 20.00
FAR by: John Bo S. Cayetano, CPA, MBA Page 1 of 4
Basic EPS – Tax Treatment
5) Filipina Company provided the following extract from the statement of comprehensive income for the year ended
December 31, 2020:

Income before tax 6,000,000

Income tax expense 1,800,000
The entity paid during the year an ordinary dividend of P1,000,000 and a dividend on the redeemable preference
shares of P500,000. The entity had P1,000,000 of P5 par value ordinary shares in issue throughout the year and
500,000 authorized ordinary shares.

What amount should be reported as basic earnings per share for the year?
A. 30.00
B. 27.50
C. 21.00
D. 18.50

Diluted EPS – Convertible PS, Present at January 1

Numbers 6, 7 and 8
Biggy Company reported profit of P770,000 for 2020. Biggy sold 15,000 treasury shares acquired in a previous year on
July 1 and 15,000 new shares on November 1. At year-end, 180,000 shares were outstanding. Biggy had 20,000
shares of P100 par value 7% preference shares outstanding all year. Biggy paid dividends to preference shareholders
as stipulated.

6) The weighted average number of ordinary shares used to compute earnings per share for 2020 is
A. 190,000
B. 160,000
C. 165,000
D. 180,000
7) What is the basic earnings per share for 2020?
A. 3.50
B. 3.94
C. 4.81
D. 3.32
8) If the preference share is convertible into two ordinary shares, the diluted earnings per share for 2020 is
A. 3.85
B. 3.94
C. 4.81
D. 3.35

Diluted EPS – Convertible PS with Share Split & Share Dividends, Present at January 1
Numbers 9 and 10
On January 1, 2023, Buraka Company had 480,000 P60 par ordinary shares and 100,000, 9% P100 par convertible
cumulative preference shares outstanding. The preference shares are convertible into 100,000 ordinary shares before
share dividend and share split. During 2023, the following transactions affected the ordinary shares:

February 1 Issued 120,000 shares

March 1 Issued a 20% share dividend
May 1 Acquired 100,000 treasury shares
June 1 Issued a 3-for-1 split
October 1 Reissued 60,000 treasury shares
The net income was P32,560,000 and Buraka did not declare dividend on preference shares.

9) What amount should be reported as basic EPS for 2023?

A. 16.54
B. 16.79
C. 16.96
D. 16.33
10) What amount should be reported as diluted EPS for 2023?
A. 14.16
B. 13.77
C. 15.53
D. 15.97

FAR by: John Bo S. Cayetano, CPA, MBA Page 2 of 4

Diluted EPS – Convertible PS, Not Present at January 1
11) At December 31, 2024, Frown Company had 2,000,000 ordinary shares outstanding. On July 1, 2025, Frown
issued 500,000 preference shares which were convertible into 300,000 ordinary shares. During 2025, Frown
declared and paid P1,000,000 cash dividends on the ordinary shares and P800,000 cash dividends on the
preference shares. Net income for the year ended December 31, 2025 was P6,500,000.

What amount should be reported as diluted earnings per share for the year December 31, 2025?
A. 3.02
B. 2.85
C. 2.83
D. 1.75

Diluted EPS – Convertible Bonds, Present at January 1

Numbers 12, 13 and 14
Nicole Company reported the following data at December 31, 2022:
Net income for the year 2022 3,464,000
Ordinary share, P100 par 2,500,000
10% bonds payable (issued on prior to 2022) 1,000,000
There were no transactions in ordinary shares in 2022. The bonds are convertible into ordinary shares in the ratio of 5
ordinary shares for each P1,000 bond. The income tax rate is 30%. Compute the basic and diluted EPS:

12) Case 1: None of the bonds were converted in 2022:

BEPS DEPS
A. 138.56 117.80
B. 138.56 135.92
C. 138.56 113.13
D. 138.56 130.54

13) Case 2: All the bonds were converted on October 1, 2022:

BEPS DEPS
A. 131.96 117.22
B. 131.06 122.31
C. 131.96 118.66
D. 131.96 113.72
14) Case 3: P600,000 bonds were converted on October 1, 2022:
BEPS DEPS
A. 134.52 117.45
B. 134.52 116.87
C. 134.52 116.75
D. 134.52 113.48

Diluted EPS – Convertible Bonds, Not Present at January 1

15) On July 1, 2023, Charlotte Company issued at par P2,000,000 7% convertible bonds. Each P1,000 bonds are
convertible into 10 ordinary shares. No bonds were converted during 2023. The entity had 200,000 ordinary shares
outstanding during 2023. The net income for 2023 was P600,000 and the income tax rate was 30%.

What amount should be reported as diluted earnings per share on December 31, 2023?
A. 3.17
B. 3.00
C. 3.09
D. 2.95

Diluted EPS – Share Options

16) Igor Company had 200,000 ordinary shares issued and outstanding at December 31, 2020. On July 1, 2021, Igor
Company issued a 10% bonus issue. Unexercised share options to purchase 40,000 ordinary shares at P20 per
share were outstanding at the beginning and end of 2021. The market price of Igor share was P25 during 2016.
Profit for the year ended December 31, 2021 was P1,100,000.

What is Igor Company’s 2021 diluted earnings per share, rounded to nearest cent?
A. 5.05
B. 5.00
C. 4.81
D. 4.23

FAR by: John Bo S. Cayetano, CPA, MBA Page 3 of 4

17) Denise Company reported net income of P720,000 for the year ended December 31, 2023.

Ordinary shares outstanding at January 1, 2023 80,000

Incentive share option vested in 2022 outstanding throughout 2023 24,000
Each option is exercisable for one share at an exercise price of P37.50 during the year. The market price of the
share averaged P45 during the year.

On August 30, Denise sold 15,000 ordinary shares. Denise’s only debt consisted of P50,000 of 10% short term
bank note. The income tax rate is 30%.

What amount should be reported as diluted earnings per share?

A. 8.09
B. 6.60
C. 6.05
D. 8.13

Diluted EPS – Double Diluter

18) Information relating to the capital structure of the ROMERO Company is as follows

Outstanding securities 2020 2021

Ordinary 1,000,000 1,000,000
Convertible preference shares 100,000 100,000
10% convertible bonds P30,000,000 P30,000,000
During 2022, Romero paid dividends of P15 per share on its preference shares. The preference shares are
convertible into 150,000 ordinary shares and the 10% bonds are convertible into 300,000 ordinary shares. Profit for
2022 was P10,000,000. The income tax rate is 35%.

The diluted earnings per share for 2022 should be

A. 8.50
B. 8.24
C. 8.04
D. 7.50

Diluted EPS – Triple Diluter

Numbers 19 and 20
The information below pertains to Nozoni Company.

Profit for the year 1,200,000

8% convertible bonds issued at par (P1,000 per bond). One bond is convertible into 40 ordinary shares 2,000,000
6% convertible into 3 ordinary shares, cumulative preference shares, P100 par value. 3,000,000
Ordinary shares, P10 par value 6,000,000
Share options (granted in a prior year) to purchase 50,000 ordinary shares at P20 per share 500,000
Tax rate 40%
Average market price of ordinary shares P25/share
There were no changes during the year in the number of ordinary shares, preference shares, or convertible bonds
outstanding. There is no treasury share.

19) What is the basic earnings per share?

A. 2.00
B. 1.82
C. 1.70
D. 1.07
20) What is the diluted earnings per share?
A. 1.70
B. 1.66
C. 1.62
D. 1.26

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