CHAPTER 12 EARNING PER SHARE
ĐỀ 2
1. In computing earnings per share for a simple capital structure, if the
preference shares are cumulative, the amount that should be deducted as an
adjustment to the numerator (earnings) is the
a. preference dividends in arrears times (one minus the income tax rate)
b. preference dividends in arrears
c. None of these answers are correct
d. annual preference dividend times (one minus the income tax rate)
2. At December 31, 2019 and 2018, Miley Corp. had 180,000 ordinary shares
and 10,000 shares of 5%, €100 par value cumulative preference shares
outstanding. No dividends were declared on either the preference or ordinary
shares in 2019 or 2018. Net income for 2019 was €400,000. For 2019, earnings
per share amounted to
a. None of these answers are correct
b. €1.94
c. €1.11
d. €1.67
e. €2.22
3. At December 31, 2019, Hancock Company had 500,000 ordinary shares
issued and outstanding, 400,000 of which had been issued and outstanding
throughout the year and 100,000 of which were issued on October 1, 2019. Net
income for the year ended December 31, 2019, was €1,020,000. What should be
Hancock's 2019 earnings per share, rounded to the nearest penny?
a. €2.55
b. €2.02
d. €2.27
c. None of these answers are correct
e. €2.40
4. In determining diluted earnings per share, dividends on nonconvertible
cumulative preference shares should be:
a. deducted from net income only if declared
b. added back to net income whether declared or not
c. deducted from net income whether declared or not
d. disregarded
5. Grimm Company has 1,800,000 ordinary shares outstanding on December
31, 2018. An additional 150,000 ordinary shares were issued on July 1, 2019,
and 300,000 more on October 1, 2019. On April 1, 2019, Grimm issued 6,000,
€1,000 face value, 8% convertible bonds. Each bond is convertible into 40
ordinary shares. The bonds are dilutive. No bonds were converted in 2019.
What is the number of shares to be used in computing basic earnings per share
and diluted earnings per share, respectively, for the year ended December 31,
2019?
a. 2,250,000 and 2,430,000
b. 1,950,000 and 1,950,000
c. 1,950,000 and 2,190,000
d. None of these answers are correct
e. 1,950,000 and 2,130,000
6. If all of the dilutive securities were converted into ordinary shares, the diluted
earnings per share ratio:
a. must include an adjustment to decrease the weighted average number of ordinary
shares that would be outstanding
b. must include an adjustment to increase the weighted average number of ordinary
shares that would be outstanding
c. may include an adjustment to increase the weighted average number of ordinary
shares that would be outstanding
d. must include an adjustment to increase the number of ordinary shares that would
be outstanding
7. In the diluted earnings per share computation, the treasury share method is
used for options and warrants to reflect assumed reacquisition of ordinary
shares at the average market price during the period. If the exercise price of
the options or warrants exceeds the average market price, the computation
would
a. be antidilutive
b. reflect the excess of the number of shares assumed issued over the number of
shares assumed reacquired as the potential dilution of earnings per share
c. fairly present the maximum potential dilution of diluted earnings per share on a
prospective basis
d. fairly present diluted earnings per share on a prospective basis
8. Any errors or adjustments resulting from changes in accounting policies that
are accounted for retrospectively require
a. a retrospective adjustment to diluted earnings per share only
b, a retrospective adjustment to basic earnings per share only
c. no retrospective adjustment to either basic or diluted earnings per share
d. a retrospective adjustment to both basic and diluted earnings per share
9. Shipley Corporation had net income for the year of £480,000 and a weighted
average number of ordinary shares outstanding during the period of 200,000
shares. The company has a convertible bond issue outstanding. The bonds were
issued four years ago at par (£2,000,000), carry a 7% interest rate, and are
convertible into 40,000 shares. The company has a 40% tax rate. Diluted
earnings per share are:
a £1.65
b. £2.58
c. £2.35
d. None of these answers are correct
e. £2.23
10. Yoder, Incorporated, has 3,200,000 ordinary shares outstanding on
December 31, 2018. An additional 800,000 ordinary shares were issued on April
1, 2019, and 400,000 more on July 1, 2019. On October 1, 2019, Yoder issued
20,000, €1,000 face value, 8% convertible bonds. The bonds are dilutive. Each
bond is convertible into 20 ordinary shares. No bonds were converted in 2019.
What is the number of shares to be used in computing basic earnings per share
and diluted earnings per share, respectively?
a. 4,000,000 and 4,400,000
b. 4,000,000 and 4,100,000
c. 4,000,000 and 4,000,000
d. 4,400,000 and 5,200,000
e. None of these answers are correct
11. Harry Ltd determined its profit attributable to ordinary shareholders for
the reporting period ended 30 June 2016 as €960,000. The average market price
of the entity's shares during the period is €4.00 per share. The weighted average
number of ordinary shares on issue during the period is 1,000,000. The
weighted average number of shares under share options arrangements during
the year is 200,000 and the exercise price of shares under option is €3.50. The
diluted earnings per share at 30 June 2016 is
a €0.80
b. €0.94
c. €4.00
d. €1.24
12. XYZ Ltd has 10 000 ordinary shares on issue at 1 July 2015 which is the
beginning of its reporting period. On 1 May 2016, it issued a further 2000
ordinary shares for cash. The weighted average number of shares for use in the
earnings per share calculation is:
a. 10,000 shares
b. 10,333 shares
c. 12,000 shares
d. 11,000 shares
13. The basic earnings per share and diluted earnings per share ratios must be
presented in an entity's:
a. statement of profit or loss and other comprehensive income even if the amounts
are negative
b. statement of changes in equity even if the amounts are negative
c. statement of profit or loss and other comprehensive income only if the amounts
are positive
d. statement of financial position even if the amounts are negative
14. On January 2, 2019, Mize Co. issued at par €300,000 of 9% convertible
bonds. Each €1,000 bond is convertible into 30 ordinary shares. No bonds were
converted during 2019. Mize had 50,000 ordinary shares outstanding during
2019. Mize 's 2019 net income was €160,000 and the income tax rate was 30%.
Mize's diluted earnings per share for 2019 would be (rounded to the nearest
penny)
a €3.58
b. €2.71
c. €3.20
d. None of these answers are correct
e. €3.03
15. At December 31, 2018, Sager Co. had 1,200,000 ordinary shares
outstanding. In addition, Sager had 450,000 shares of preference shares which
were convertible into 750,000 ordinary shares During 2019, Sager paid
£600,000 ordinary cash dividends and £400,000 preference cash dividends. Net
income for 2019 was £3,400,000 and the income tax rate was 40%. The diluted
earnings per share for 2019 is (rounded to the nearest penny)
a £2.51
b. £1.74
c £1.24
d. £2.84
e. None of these answers are correct
16. Assume there are two dilutive convertible securities. The one that should be
used first to recalculate earnings per share is the security with the
a smaller earnings effect per share
b. smaller earnings adjustment
c greater earnings effect per share
d. greater earnings adjustment
17. Beaty Inc. purchased Dunbar Co. and agreed to give shareholders of
Dunbar Co. 10,000 additional shares in 2020 if Dunbar Co.'s net income in 2019
is €500,000; in 2018 Dunbar Co.'s net income is €520,000. Beaty Inc. has net
income for 2018 of €200,000 and has an average number of ordinary shares
outstanding for 2018 of 100,000 shares. What should Beaty report as diluted
earnings per share for 2018?
a. €2.22
b. None of these answers are correct
c. €1.82
d. €2.00
e. €1.67
18. Hanson Co. had 200,000 ordinary shares, 20,000 shares of convertible
preference shares, and €1,000,000 of 10% convertible bonds outstanding
during 2019. The preference shares are convertible into 40,000 ordinary shares.
During 2019, Hanson paid dividends of €1.20 per share on the ordinary shares
and €4 per share on the preference shares. Each €1,000 bond is convertible into
45 ordinary shares. The net income for 2019 was $800,000 and the income tax
rate was 30%. Basic earnings per share for 2019 is (rounded to the nearest
penny):
a. €3.35
b. €2.94
c. None of these answers are correct
d. €3.22
e. €3.60
19. Earnings per share is calculated by comparing an entity's:
a, revenue with the number of ordinary shares it has on issue
b. profit with the number of ordinary shares it has on issue
c. revenue with the number of shareholders
d. profit with the number of shareholders