CPA REVIEW SCHOOL FOF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING VALIX/VALIX/ESCALA/SANTOS/DELA CRUZ

DILUTED EARNINGS PER SHARE

1. An entity had 200,000 P50 par value ordinary shares outstanding on January 1, 2021. In addition, on
January 1, 2021, the entity had issued 30,000 convertible cumulative 10% preference shares with
P100 par. These preference shares were converted on September 1, 2021. Each preference share was
converted into 5 ordinary shares. The preference dividends for the entire year were paid in full before
the conversion. The entity had no other potentially dilutive securities. Net income for the current
year was P5,000,000.
1. What amount should be reported as basic earnings per share?
a. 18.80
b. 13.43
c. 23.50
d. 25.00
2. What amount should be reported as diluted earnings per share?
a. 14.29
b. 20.00
c. 18.80
d. 10.00
2. An entity had 200,000 ordinary shares outstanding on January 1, 2021. On January 1, 2021, the entity
had issued convertible 8% bonds with face amount of P5,000,000.
The bonds were converted on October 1, 2021 and 40 ordinary shares were issued in exchange for
every P1,000 bond. Net income for current year was P6,000,000. The income tax rate is 25%.
1. What amount should be reported as of basic earnings per share?
a. 30.00
b. 17.14
c. 24.00
d. 15.00
2. What amount should be reported as of diluted earnings per share?
a. 15.56
b. 16.00
c. 15.00
d. 15.75

3. An entity had 200,000 ordinary shares issued and outstanding on January 1, 2021.
Unexercised share options to purchase 50,000 ordinary shares at P20 per share were outstanding at
the beginning and end of 2021.
The average market price of ordinary share was P25 during 2021. Net income for the year was
P6,000,000. The income tax rate is 25%.
1. What amount should be reported as basic earnings per share?
a. 24.00
b. 25.00
c. 21.00
d. 30.00
2. What amount should be reported as diluted earnings per share?
a. 16.80
b. 28.57
c. 25.00
d. 20.00

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4. An entity reported the following information on December 31, 2021:
Ordinary share capital 110,000 shares
Convertible noncumulative preference share capital 20,000 shares
10% convertible bonds payable P3,000,000
Share options to purchase 60,000 shares at P15 were outstanding. Market price of ordinary share
was P25 on December 31, 2021 and averaged P20 during the year. The entity paid the annual
preference dividends of P5 per share. The preference shares are convertible into 40,000 ordinary
shares. The 10% bonds are convertible into 50,000 ordinary shares. The net income for 2021 is
P650,000. The tax rate is 25%.
1. What amount should be reported as basic earnings per share?
a. 5.00
b. 5.91
c. 4.36
d. 4.40
2. What amount should be reported as diluted earnings per share?
a. 5.00
b. 4.40
c. 4.07
d. 3.94
5. On January 1, 2021, an entity had 480,000 P60 par value ordinary shares and 100,000, 10% P100
par value convertible cumulative preference shares outstanding. The preference shares are
convertible into 100,000 ordinary shares before share dividend and split. The net income was
P35,000,000 and the entity did not declare dividend on preference shares. During the current year,
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.
1. What amount should be reported as basic earnings per share?
a. 16.04
b. 16.51
c. 18.05
d. 17.53
2. What amount should be reported as diluted earnings per share?
a. 15.22
b. 17.17
c. 14.79
d. 16.67
6. On January 1, 2021, there are 100,000 ordinary shares outstanding. The shareholders’ equity of an
entity was affected by the following transactions during 2021.
February 1 21,000 ordinary shares were sold in the market.
April 1 Purchased 5,000 ordinary shares to be held in treasury.
July 1 Issued P1,000,000, 5-year, 10% bonds at face amount. Each P1,000 bond
is convertible into 50 ordinary shares.
July 1 35,000 ordinary shares were sold.
October 1 A 10% bonus issue was declared and distributed.
December 31 Net income for 2021 was P2,926,000. The tax rate is 25%.
1. What amount should be reported as basic earnings per share?
a. 20.00
b. 19.45
c. 19.95
d. 19.38
2. What amount should be reported as diluted earnings per share?
a. 17.05
b. 17.27
c. 17.30
d. 17.52 6932
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Problem 4 Solution 6932

Net income Shares EPS

Basic EPS 550,000 110,000 5.00
Share options -___ 15,000 ___
Diluted EPS 550,000 125,000 4.40
Convertible preference shares 100,000 40,000 ___
Diluted EPS 650,000 165,000 3.94
Convertible bonds 225,000 50,000 ___
Diluted EPS 875,000 215,000 4.07

Problem 5 Solution 6932

January 1 (480,000 x 1.20 x 3 x 12/12) 1,728,000

February 1 (120,000 x 1.20 x 3 x 11/12) 396,000
May 1 (100,000 x 3 x 8/12) ( 200,000)
October 1 ( 60,000 x 3/12) 15,000
Average outstanding shares – Basic EPS 1,939,000

Average outstanding shares – Basic EPS 1,939,000

Convertible preference shares (100,000 x 1.20 x 3 x 12/12) 360,000
Average ordinary shares – Diluted EPS 2,299,000

Problem 6 Solution 6932

January 1 (100,000 x 1.10 x 12/12) 110,000

February 1 ( 21,000 x 1.10 x 11/12) 21,175
April 1 ( 5,000 x 1.10 x 9/12) ( 4,125)
July 1 ( 35,000 x 1.10 x 6/12) 19,250
Average shares – Basic EPS 146,300

Average shares – Basic EPS 146,300

July 1- convertible bonds (50,000 x 1.10 x 6/12) 27,500
Average shares – Diluted EPS 173,800

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