sm ch (17).doc

7/25/2019 sm ch (17).doc

http://slidepdf.com/reader/full/sm-ch-17doc 1/124

Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian

Edition

CHAPTER 17

EARNINGS PER SHARE

ASSIGNMENT CLASSIFICATION TABLE

TopicsBrief

Exercises Exercises Problemsri!i"#

Assi#"me"!s

1. General obecti!esand basic calculations

" # ", $, #, %

$& 'e(orting E)*& " #, % ", $, #, %,+

#& E)*sim(le ca(italstructure&

$, #, %, +,-, ., /, 0,"1

", $, #, %,+, -, ., /

", $, #, %,-, ., /, 0,"1, "","$, "#, "%

%& E)*com(le2 ca(italstructure&

"1, "","$, "#,"%, "+,"-, ".,"/, "0,$1, $", $$

0, "1, "","$, "#,"%, "+,"-, "., "/

", #, %, .,/, 0, "1,"", "$,"#, "%

+& 3ifferences bet4eenI5'* and A*)E&

Solutions Manual 17-1 Chapter 17

.

7/25/2019 sm ch (17).doc



Edition

ASSIGNMENT CHARACTERISTICS TABLE

I!em $escrip!io"

Le%el of

$iffic&l!'

Time

(mi"&!es)

E".6" Weighted a!erage calc& 4ith re!erse s(lit Moderate "+6$1E".6$ Weighted a!erage number of shares& Moderate "+6$+E".6# E)*7 *im(le ca(ital structure& *im(le "+6$1E".6% E)*7 *im(le ca(ital structure& *im(le $16$+E".6+ E)*7 *im(le ca(ital structure& *im(le "+6$1E".6- E)*7 *im(le ca(ital structure& *im(le "16"+E".6. E)*7 *im(le ca(ital structure& *im(le $16$+E".6/ E)*7 *im(le ca(ital structure& *im(le "16"+E".60 E)* 4ith con!ertible bonds, !arious

situations& Com(le

2 $1

6$+

E".6"1 E)* 4ith con!ertible bonds& Moderate $16$+E".6"" E)* 4ith con!ertible bonds and (referredshares&

Moderate

$16$+

E".6"$E)* 4ith con!ertible bonds and (referredshares&

Moderate

"16"+

E".6"#E)* 4ith con!ertible bonds and (referredshares&

Com(le2

#16#+

E".6"% E)* 4ith con!ertible bonds and (referredshares&

Com(le2

#16#+

E".6"+ E)* 4ith con!ertible bonds and (referredshares&

Moderate "+6$1

E".6"-

E)* 4ith o(tions, !arious situations& Moderate $16$+

E".6". E)* 4ith 4arrants& Moderate "+6$1

E".6"/E)* 4ith contingent issuance agreement& *im(le "16"+

)".6"E)* conce(ts and effect of transactions onE)*&

Moderate

$+6#+

)".6$E)*7 sim(le ca(ital structure Moderate $16#1

)".6#E)* calculation in!ol!ing (ut and callo(tions&

Moderate

$16$+

)".6% Com(rehensi!e E)*& Moderate $16$+

)".6+ Com(rehensi!e E)*& Com(le2 #16%1

)".6-8asic E)*7 T4o6year (resentation& Moderate #16#+

)".6.Calculation of number of shares for basic anddiluted E)*&

Moderate #+6%+

E)* 4ith com(le2 ca(ital structure& Moderate #16#+


.

7/25/2019 sm ch (17).doc



Edition

)".6/)".60 Com(rehensi!e E)*& Moderate $+6#+)".6"1 Com(rehensi!e E)*& Moderate $+6#+

)".6""

*im(le E)* and E)* 4ith stock o(tions& Moderate #16%1

)".6"$E)* 4ith com(le2 ca(ital structure& Moderate $+6#+

)".6"# Com(rehensi!e E)*& Com(le2 #16#+)".6"% Com(rehensi!e E)*& Moderate $+6#+


.

7/25/2019 sm ch (17).doc


7/25/2019 sm ch (17).doc



Edition

BRIEF E+ERCISE 17,5

B-sic e-r"i"#s per s.-re <o&l8 be /563? -s i" BE17,9 bec-&se

!.e 8i%i8e"8s -re 8e8&c!e80 <.e!.er 8ecl-re8 or "o!0 <.e" !.epreferre8 s.-res -re c&m&l-!i%e6 T.is cl-im of !.e preferre8s.-re.ol8ers m&s! be s-!isfie8 prior !o -"' p-'me"! of 8i%i8e"8s !o commo" s.-re.ol8ers0 so !.ese e-r"i"#s -reperm-"e"!l' &"-%-il-ble !o commo" s.-re.ol8ers6

BRIEF E+ERCISE 17,2

$-!esO&!s!-"8i"#

S.-resO&!s!-"8i"#

Fr-c!io"of @e-r

ei#.!e8S.-res

141241241741

7411941

19303331203331:0333

54199419:419

530333 30 102331290


.

7/25/2019 sm ch (17).doc


Kieso, Weygandt, Warfield, Young, Wiecek, McConomy Intermediate Accounting, Tenth Canadian Edition

BRIEF E+ERCISE 17,:

E%e"!$-!es

O&!s!-"8i"#S.-res

O&!s!-"8i"#Res!-!e,

me"!Fr-c!io"of @e-r

ei#.!e8S.-res

Be#i""i"# b-l-"ceIss&e8 s.-resRe-c&ire8 s.-res

-"6 1M-rc. 1M-rc. 1&l' 1&l' 1$ec6 1

590333:90333 290333

161161161

94195419:419

70733 990790:33

ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"# 2?03

BRIEF E+ERCISE 17,7

E%e"!$-!es

O&!s!-"8i"#S.-res

O&!s!-"8i"#Res!-!e,

me"!Fr-c!io"of @e-r

ei#.!e8S.-res


-"6 1M-rc. 1M-rc. 1&l' 1&l' 1$ec6 1

590333:90333 290333

94195419:419

910333 :90333 70333

ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"# 1:10333


.

7/25/2019 sm ch (17).doc



BRIEF E+ERCISE 17,

E%e"!$-!es

O&!s!-"8i"#S.-res

O&!s!-"8i"#Res!-,!eme"!

Fr-c!io"of @e-r

ei#.!e8S.-res


-"6 1M-rc. 1M-rc. 1&l' 1&l' 1$ec6 1

590333:90333 290333

626262

94195419:419

0233 13010333



.

7/25/2019 sm ch (17).doc



Edition

BRIEF E+ERCISE 17,?

16 (330333 + 5419) D (30333 + 419) > 930333

96 30333 (T.e 30333 s.-res iss&e8 -s !.e s!oc; 8i%i8e"8 -re

-ss&me8 o&!s!-"8i"# from !.e be#i""i"# of !.e 'e-r6)


.

7/25/2019 sm ch (17).doc



BRIEF E+ERCISE 17,13

E%e"!$-!es

O&!s!-"8i"#S.-res

O&!s!-"8i"#Res!-,!eme"!

Fr-c!io"of @e-r

ei#.!e8S.-res

Be#i""i"# b-l-"ceIss&e8 s.-res

Re-c&ire8 s.-resS!oc; 8i%i8e"8Iss&e8 s.-res

-"6 1M-r6 1M-r6 1&l6 1

&l6 1Oc!6 1Oc!6 1$ec6 1$ec6 1$ec6 1

1330333 1190333

1370333 190533

15:0533

169169

169

94195419

41994191419

930333 55033

90133910533

190933

ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"#&"-8&s!e8 130233S!oc; spli!0 941412 9

ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"#-8&s!e8 9:10333

I"come per s.-re before 8isco"!i"&e8 oper-!io"s (/5330333 D /230333 > /5230333 (/5230333 9:10333 s.-res) /1679

$isco"!i"&e8 oper-!io"s loss per s.-re0 "e! of !-x (/230333 9:10333) ( 61?)Ne! i"come per s.-re (/5330333 9:10333) /1 62


.

7/25/2019 sm ch (17).doc



Edition


s.-res 1930333

/1530333 > /1617 per s.-re

.e" commo" s.-res <ill be iss&e8 8&e !o m-"8-!or'co"%ersio" of - fi"-"ci-l i"s!r&me"! !.-! is -lre-8' o&!s!-"8i"#0i! is -ss&me8 !.-! !.e co"%ersio" .-s -lre-8' !-;e" pl-ce for EPS c-lc&l-!io" p&rposes6 (IAS 69) T.e "&mer-!or is "o!-8&s!e8 for !.e preferre8 8i%i8e"8 si"ce i! is -ss&me8 !.-! !.e'-re co"%er!e8 !o commo" s.-res (!.&s !.e preferre8 8i%i8e"8 is"o! p-i8 o&!)0 -"8 !.e 8e"omi"-!or is prese"!e8 -s if !.eco"%ersio" !oo; pl-ce -! !.e be#i""i"# of !.e 'e-r0 si"ce !.em-"8-!oril' co"%er!ible i"s!r&me"! <-s o&!s!-"8i"# -! !.-! !ime6


Ne! i"come /7330333ei#.!e8 -%er-#e "&mber of s.-res -8&s!e8 for

8il&!i%e sec&ri!ies (1120333 D 1?0333) 150333$il&!e8 EPS

/2699 ?0233 preferre8 s.-res + 9 &po" co"%ersio"


.

7/25/2019 sm ch (17).doc



Edition

BRIEF E+ERCISE 17,1

Ne! i"come /330333

A8&s!me"! for i"!eres!0 "e! of !-x J/30333 + (1 692)K :30333

A8&s!e8 "e! i"come /:30333ei#.!e8 -%er-#e "&mber of s.-res -8&s!e8 for 8il&!i%e sec&ri!ies (1330333 D 9:0333) 19:0333$il&!e8 EPS /96:

No!e B-sic e-r"i"#s per s.-re is /633 (/33033341330333)6

$iscl-imer For simplici!'0 i#"ore !.e IFRS re&ireme"! !o recor8!.e 8eb! -"8 e&i!' compo"e"!s of !.e bo"8s sep-r-!el'6


B-sic e-r"i"#s per s.-re is /633 (/33033341330333)6

I"cre-se i" 8il&!e8 e-r"i"#s per s.-re "&mer-!orA8&s!me"! for i"!eres!0 "e! of !-x J/30333 + (1 692)K >

/:30333

I"cre-se i" 8il&!e8 e-r"i"#s per s.-re 8e"omi"-!orA8&s!me"! for 8il&!i%e sec&ri!ies > 130333

I"8i%i8&-l EPS c-lc&l-!io" /:30333 4 130333 > /:633 /633

A"!i8il&!i%e -"8 !.erefore excl&8e8 from !.e 8il&!e8 e-r"i"#s per s.-re c-lc&l-!io"6

No!e O"l' o"e e-r"i"#s per s.-re "&mber <o&l8 be prese"!e8

(/633) -"8 i! <o&l8 l-belle8 -s b-sic -"8 8il&!e8 e-r"i"#s pers.-re6


.

7/25/2019 sm ch (17).doc



Edition


Ne! i"come /2230333

A8&s!me"! for i"!eres!0 "e! of !-xJ/?990:2 + + (1 63) + 419K 50557

A8&s!e8 "e! i"come /250557ei#.!e8 -%er-#e "&mber of s.-res -8&s!e8 for 8il&!i%e sec&ri!ies

J?330333 D (/103330333 /10333 + 193 + 419)K ?30333$il&!e8 EPS

/36:3

No!e B-sic e-r"i"#s per s.-re is /36:1 (/22303334?330333)6

BRIEF E+ERCISE 17,1:

B-sic e-r"i"#s per s.-re is /36? (/2303334?330333)6

I"cre-se i" 8il&!e8 e-r"i"#s per s.-re "&mer-!orA8&s!me"! for i"!eres!0 "e! of !-x

/?990:2 + + (1 63) + 419 > /50557

I"cre-se i" 8il&!e8 e-r"i"#s per s.-re 8e"omi"-!orA8&s!me"! for 8il&!i%e sec&ri!ies/103330333 /10333 + 193 + 419 > 30333

I"8i%i8&-l EPS c-lc&l-!io" /50557 4 30333 > /365 /36?

A"!i8il&!i%e -"8 !.erefore excl&8e8 from !.e 8il&!e8 e-r"i"#s per s.-re c-lc&l-!io"6

No!e O"l' o"e e-r"i"#s per s.-re "&mber <o&l8 be prese"!e8

(/36?) -"8 i! <o&l8 l-belle8 -s b-sic -"8 8il&!e8 e-r"i"#s pers.-re6


.

7/25/2019 sm ch (17).doc



Edition

BRIEF EXERCISE 17-17

N&mber of commo" s.-res o&!s!-"8i"# b-sic 1230333

A88i!io"-l s.-res co"%ersio" of preferre8 s.-res

(90333 + :419) 150333

ei#.!e8 -%er-#e "&mber of s.-res 8il&!e8 EPS 1:50333

BRIEF E+ERCISE 17,1

Procee8s from -ss&me8 exercise of 520333

op!io"s (520333 + /13) /5230333

S.-res iss&e8 &po" exercise 520333Tre-s&r' s.-res p&rc.-s-ble (/5230333 /12) 30333I"creme"!-l s.-res o&!s!-"8i"# (-88i!io"-l po!e"!i-l commo" s.-res) 120333

$il&!e8 EPS > 1203339330333

/330333

> /1653

BRIEF E+ERCISE 17,1?

P&rc.-se8 op!io"s <ill -l<-'s be -"!i8il&!i%e si"ce !.e' <ill o"l'be exercise8 <.e" !.e' -re i" !.e mo"e' -"8 !.is <ill -l<-'s bef-%o&r-ble !o !.e comp-"'6 He"ce !.ere -re "o i"creme"!-ls.-res o&!s!-"8i"#6 T.e' -re !.erefore "o! co"si8ere8 i" !.ec-lc&l-!io" of 8il&!e8 EPS (IAS 6:9)6


.

7/25/2019 sm ch (17).doc



Edition


Amo&"! "ee8e8 !o b&' 530333 s.-res &"8er

p&! op!io"s (530333 + /1) /2930333

S.-res iss&e8 i" m-r;e! !o ob!-i" /2930333(/2930333 /19) 50

N&mber of s.-res p&rc.-se8 &"8er !.e p&! op!io"s 530333I"creme"!-l s.-res o&!s!-"8i"# (-88i!io"-l po!e"!i-l commo" s.-res) 0


Purchased options will always be antidilutive since they will onlybe exercised when they are in the money. In this case, theywould exercise the option only if the option price were above themarket price. They are therefore not included in the calculationof diluted earnings per share (IAS 33.62).

BRIEF EXERCISE 17-22

The put options are not in the money (exercise price < marketprice) in this case since the exercise price is $11 and the marketprice is $12. Therefore, these put options would be excludedfrom the calculation of diluted earnings per share.


.

7/25/2019 sm ch (17).doc



SOLUTIONS TO EXERCISES

E+ERCISE 17,1 (12,93 mi"&!es)

(-)

E%e"!$-!es

O&!s!-"8i"#S.-res

O&!s!-"8i"#Res!-,!eme"!

Fr-c!io"of @e-r

ei#.!e8S.-res

Be#i""i"# b-l-"ceIss&e8 s.-resS!oc; 8i%i8e"8Ac&ire8 s.-res

-"6 1April 1April 1&l' 1&l' 1No%6 1No%6 1$ec6 1

5720333 2990233 :970333 290333

169169

41941954199419

159023312:072393?0333 ?70333

ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"# :320923

(b)

E%e"!$-!es

O&!s!-"8i"#

S.-res

O&!s!-"8i"#

Res!-,

!eme"!

Fr-c!io"

of @e-r

ei#.!e8

S.-resBe#i""i"# b-l-"ceIss&e8 s.-resRe%erse s!oc; spli!Ac&ire8 s.-res

-"6 1April 1April 1&l' 1&l' 1No%6 1No%6 1$ec6 1

5720333 2990233 1350233

2?0233

6969

41941954199419

907239:019250 ?0?17

ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"# ?50:92


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,9 (12,92 mi"&!es)

(-) 701230333 s.-res-"6 10 931Sep!6 30 931 (:02330333 + ?419) 50720333

Re!ro-c!i%e -8&s!me"! for s!oc; 8i%i8e"8 + 1613-"6 10 931Sep!6 30 9310 -s -8&s!e8 20:90233Oc!6 10 931$ec6 10 931 (:02330333 + 161 + 419) 10770233

701230333

A"o!.er <-' !o %ie< !.is !r-"s-c!io" is !.-! !.e :02330333 s.-res-! !.e be#i""i"# of 931 m&s! be res!-!e8 for !.e s!oc; 8i%i8e"8re#-r8less of <.e" 8&ri"# !.e 'e-r !.e s!oc; 8i%i8e"8 occ&rs6

(b) 701230333 s.-res

-"6 10 931Sep!6 30 931 (:02330333 + ?419) 50720333Re!ro-c!i%e -8&s!me"! for s!oc; 8i%i8e"8 + 1613-"6 10 931Sep!6 30 9310 -s -8&s!e8 20:90233Oc!6 10 931$ec6 10 931 ( :02330333+161 + 419) 10770233

701230333

T.e <ei#.!e8 -%er-#e "&mber of commo" s.-res !o &se i"c-lc&l-!i"# e-r"i"#s per commo" s.-re for 931 is !.e s-me for !.e 931 -"8 9315 comp-r-!i%e i"come s!-!eme"!s0 bec-&se !.e

,for,1 s!oc; spli! occ&rre8 -f!er !.e 9315 fi"-"ci-l s!-!eme"!s<ere iss&e86

(c) ?03920333 s.-res-"6 10 9315M-r6 10 9315 (701230333 + 419) 10770233Apr6 10 9315$ec6 10 9315 (?0:230333 + ?419) 70970233

?03920333

(8) 9703720333 s.-res9315 <ei#.!e8 -%er-#e "&mber of s.-res

pre%io&sl' c-lc&l-!e8

?03920333Re!ro-c!i%e -8&s!me"! for s!oc; spli! +

9703720333


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,9 (Co"!i"&e8)

(e) 90?230333 s.-res-"6 10 9312M-r6 10 9312 (?0:230333 + 419) 905190233Re!ro-c!i%e -8&s!me"! for s!oc; spli! +

-"6 10 9312M-r6 10 93120 -s -8&s!e8 70970233Apr6 10 9312$ec6 10 9312(?0:230333 + + ?419) 9107190233

90?230333

A"o!.er <-' !o %ie< !.is !r-"s-c!io" is !.-! !.e ?0:230333 s.-res-! !.e be#i""i"# of !.e 'e-r m&s! be res!-!e8 for !.e s!oc; spli!re#-r8less of <.e" 8&ri"# !.e 'e-r !.e s!oc; spli! occ&rs6

(f) E-r"i"#s per commo" s.-re 8isclos&res .elp bo!. exis!i"# -"8

po!e"!i-l i"%es!ors 8e!ermi"e !.e -mo&"! of i"come e-r"e8 b'e-c. commo" s.-re6 I" c-lc&l-!io"s of EPS0 !.e <ei#.!e8-%er-#e "&mber of s.-res o&!s!-"8i"# pro%i8es !.e b-sis for !.eper,s.-re -mo&"!s !.-! -re repor!e86 .e" s!oc; 8i%i8e"8s or s!oc; spli!s occ&r0 c-lc&l-!io" of !.e <ei#.!e8 -%er-#e "&mber of s.-res re&ires - res!-!eme"! of !.e s.-res o&!s!-"8i"# before!.e s!oc; 8i%i8e"8 or s!oc; spli!0 so !.-! %-li8 comp-riso"s of EPS c-" be m-8e be!<ee" perio8s before -"8 -f!er !.e s!oc;8i%i8e"8 or s!oc; spli!6 EPS is -lso &se8 i" !.e c-lc&l-!io" of Price E-r"i"#s r-!io (m-r;e! price of s.-res 4 EPS)0 <.ic.

comp-res !.e m-r;e! price of !.e comp-"'=s s.-res <i!. i"come#e"er-!e8 o" - per,s.-re b-sis6 M-r;e! price of !.e comp-"'=ss.-res <ill #e"er-ll' -8&s! -f!er iss&-"ce of - s!oc; 8i%i8e"8 or s!oc; spli!6 For c-lc&l-!io" of Price E-r"i"#s r-!io !o rem-i" %-li8-f!er - s!oc; 8i%i8e"8 or s!oc; spli!0 EPS s.o&l8 -lso be -8&s!e8i" !.e comp-"'=s fi"-"ci-l s!-!eme"!s0 !o -ss&me !.-! !.e-88i!io"-l s.-res .-%e bee" o&!s!-"8i"# si"ce !.e be#i""i"# of !.e 'e-r i" <.ic. !.e s!oc; 8i%i8e"8 or s!oc; spli! occ&rre86


.

7/25/2019 sm ch (17).doc



E+ERCISE 17, (12,93 mi"&!es)

(-)

E%e"!

$-!es

O&!s!-"8i"#

S.-res

O&!s!-"8i"#

Fr-c!io"

of @e-r

ei#.!e8

S.-res-"6 1Iss&e8 s.-resRe-c&ire8

s.-res

-"6 1M-' 1M-' 1Oc!6 1Oc!6 1$ec6 1

9130333910333

9350333

5419:419

9419

73033313?0333

50333910333

I"come per s.-re before 8isco"!i"&e8 oper-!io"s

(/99?0:?3 D /530:33 > /97309?3

(/97309?3 910333 s.-res) /1697

$isco"!i"&e8 oper-!io"s loss per s.-re0 "e! of !-x

(/530:33 910333) ( 61?)Ne! i"come per s.-re (/99?09?3 910333) /1 63

(b)

ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"#&"-8&s!e8 910333

S!oc; spli!0 141412 ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"#-8&s!e8 :?0333

I"come per s.-re before 8isco"!i"&e8 oper-!io"s (/99?0:?3 D /530:33 > /97309?3

(/97309?3 :?0333 s.-res) /3659

$isco"!i"&e8 oper-!io"s loss per s.-re0 "e! of !-x (/530:33 :?0333) ( 63:)Ne! i"come per s.-re (/99?09?3 :?0333) /3 6:


.

7/25/2019 sm ch (17).doc



E+ERCISE 17, (Co"!i"&e8)

(c)Commo" s.-re.ol8ers "ee8 !o ;"o< .o< m&c. of - comp-"'=s

-%-il-ble i"come c-" be -!!rib&!e8 !o !.e s.-res !.e' o<"6 T.is .elps!.em -ssess f&!&re 8i%i8e"8 p-'o&!s -"8 !.e %-l&e of e-c. s.-re6.e" !.e i"come s!-!eme"! prese"!s 8isco"!i"&e8 oper-!io"s0e-r"i"#s per s.-re s.o&l8 be 8isclose8 for i"come from co"!i"&i"#oper-!io"s0 8isco"!i"&e8 oper-!io"s0 -"8 "e! i"come6 T.ese8isclos&res m-;e i! possible for &sers of !.e fi"-"ci-l s!-!eme"!s !o;"o< !.e specific imp-c! of i"come from co"!i"&i"# oper-!io"s o"e-r"i"#s per s.-re0 -s oppose8 !o - si"#le e-r"i"#s per s.-re"&mber0 <.ic. -lso i"cl&8es !.e imp-c! of - #-i" or loss fromirre#&l-r i!ems6

(8)

I! is possible !o .-%e simple -"8 complex c-pi!-l s!r&c!&res o%er 8iffere"! fisc-l 'e-rs of - corpor-!io"6 For e-c. -cco&"!i"# perio8 -corpor-!io" <o&l8 "ee8 !o 8e!ermi"e <.e!.er op!io"s0 <-rr-"!s0co"%er!ible 8eb! or co"%er!ible preferre8 s.-res <ere o&!s!-"8i"#8&ri"# !.e fisc-l 'e-r6 Iss&-"ce or re8emp!io" of s&c. sec&ri!ies<o&l8 le-8 !o - c.-"#e i" !.e c-pi!-l s!r&c!&re from simple !ocomplex or %ice %ers- -"8 !.is <o&l8 be reflec!e8 i" !.e EPS

8isclos&re6


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,5 (93,92 mi"&!es)

(-)I"come before i"come !-x -"8 8isco"!i"&e8 oper-!io"s/:30333

I"come !-x (3) 9350333I"come before 8isco"!i"&e8 oper-!io"s 57:0333$isco"!i"&e8 oper-!io"s #-i" of /?703330 "e! of -pplic-ble i"come !-x of /9?0133 :70?33

Ne! i"come /250?33

E-r"i"#s per commo" s.-re I"come before 8isco"!i"&e8 oper-!io"s /163

$isco"!i"&e8 oper-!io"s #-i" "e! of !-x 617Ne! i"come /1693

$-!esO&!s!-"8i"#

S.-resO&!s!-"8i"#

Fr-c!io"of @e-r

ei#.!e8S.-res

-"6 1April 1April 1&l' 1&l' 1Oc!6 1Oc!6 1$ec6 1

9330333?303335?30333230333

419419419419

230333 ?702331990233190233

ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"# 5390233

/:30333 i"come !-x of /9350333 preferre8 8i%i8e"8s of /:30333(: of /103330333) > /51:0333 (i"come -%-il-ble !o commo"s.-re.ol8ers)

/51:0333 5390233 s.-res > /163 per s.-re(i"come before 8isco"!i"&e8 oper-!io"s #-i")

/:70?33 5390233 s.-res > /617 per s.-re(8isco"!i"&e8 oper-!io"s #-i"0 "e! of !-x)

(/250?33 /:30333 Pref6 $i%) 5390233 s.-res > /1693 per s.-re("e! i"come)


.

7/25/2019 sm ch (17).doc




(b)

ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"#&"-8&s!e8 5390233

Re%erse s!oc; spli!0 9413412 + 149ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"#

-8&s!e8 9310923

E-r"i"#s per commo" s.-re I"come before 8isco"!i"&e8 oper-!io"s /9637

$isco"!i"&e8 oper-!io"s #-i" "e! of !-x 65Ne! i"come

/9651

/:30333 i"come !-x of /9350333 preferre8 8i%i8e"8s of /:30333(: of /103330333) > /51:0333 (i"come -%-il-ble !o commo"s.-re.ol8ers)

/51:0333 9310923 s.-res > /9637 per s.-re(i"come before 8isco"!i"&e8 oper-!io"s #-i")

/:70?33 9310923 s.-res > /65 per s.-re

(8isco"!i"&e8 oper-!io"s #-i"0 "e! of !-x)(/250?33 /:30333 Pref6 $i%) 9310923 s.-res > /9651 per s.-re("e! i"come)

(c) Lo#-" is co"si8ere8 !o .-%e - simple c-pi!-l s!r&c!&re bec-&se i!sc-pi!-l s!r&c!&re 8oes "o! i"cl&8e sec&ri!ies !.-! co&l8 .-%e -8il&!i%e effec! b' lo<eri"# e-r"i"#s per s.-re6 Lo#-" 8oes "o!.-%e -"' po!e"!i-l commo" s.-res6


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,2 (12,93 mi"&!es)

(-)

E%e"!$-!es

O&!s!-"8i"#S.-res

O&!s!-"8i"#Res!-,!eme"!

Fr-c!io"of @e-r

ei#.!e8S.-res


S!oc; 8i%i8e"8Ac&ire8 s.-resS!oc; spli!Iss&e8 s.-res

-"6 1Feb6 1Feb6 1M-r6 1

M-r6 1M-' 1M-' 1&"e 1&"e 1Oc!6 1Oc!6 1$ec6 1

230333 7:30333

:0333 ::0333

10?3033310?:0333

161 + 63161 + 63

6363

14191419

941914195419419

12?0233 93?0333

510333 12?0333 ::0333 5?90333


(b) E-r"i"#s Per S.-re >Shares)Average(Weighted2,073,500

income)(et$3,45!,000 > /16:7

(c) E-r"i"#s Per S.-re >2,073,500

$"00,000 –$3,45!,000 > /169


.

7/25/2019 sm ch (17).doc




(8) I"come from co"!i"&i"# oper-!io"s- /16Loss from 8isco"!i"&e8 oper-!io"sb (691)Ne! i"come /16:7

Ne! i"come /052:0333A88 loss from 8isco"!i"&e8 oper-!io"s 590333

I"come from co"!i"&i"# oper-!io"s /00333

-

90370233

/00333 > /16

b 90370233

/(590333)

> /(691)

(e) T.e e-r"i"#s process occ&rs co"!i"&o&sl' !.ro&#.o&! !.e fisc-l'e-r6 e m&s! !.erefore reco#"ie !.-! !.e i"come for !.e 'e-r <-s #e"er-!e8 from !.e c-pi!-l -%-il-ble !.ro&#.o&! !.e 'e-r0r-!.er !.-" !.e -mo&"! of c-pi!-l from !.e commo" s.-res -!-"' p-r!ic&l-r poi"! i" !ime6 I! is "ecess-r' !o -8&s! !.e8e"omi"-!or of !.e EPS r-!io !o reflec! !.e le"#!.s of !ime 8&ri"#

!.e 'e-r !.-! !.e 8iffere"! -mo&"!s of c-pi!-l from !.e 8iffere"!"&mber of s.-res o&!s!-"8i"# <ere -%-il-ble !o fi"-"ce !.e#e"er-!io" of e-r"i"#s 8&ri"# !.e 'e-r6


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,: (13,12 mi"&!es)

(-)

E%e"!$-!es

O&!s!-"8i"#S.-res

O&!s!-"8i"# Res!-!eme"!Fr-c!io"of @e-r

ei#.!e8S.-res


-"6 1M-' 1M-' 1Sep!6 1Sep!6 1$ec6 1

:2303337230333

:330333

999

541954195419

50 2330333 5330333


Ne! i"come /202330333Preferre8 8i%i8e"8 (230333 + /133 + ) (5330333)

/201330333

#o&!s!-"8i"s.-resof "&mber -%er-#eei#.!e8

s.-res commo"!o-pplic-ble i"comeNe!> 100

/201330333 > /6

(b) H-8 !.e s!oc; spli! occ&rre8 o" -"&-r' 30 93120 before !.e fi"-"ci-l s!-!eme"!s for !.e'e-r e"8i"# $ecember 10 9315 <ere iss&e80 !.e res&l!s of !.e c-lc&l-!io" for !.e e-r"i"#sper s.-re <o&l8 rem-i" &"c.-"#e8 -s !.e effec! of !.e s!oc; spli! <o&l8 be -pplie8re!ro-c!i%el' !o !.e e-rlies! comp-r-!i%e 8-!e for !.e perio8s 8isclose8 i" !.e fi"-"ci-ls!-!eme"!s6


.

7/25/2019 sm ch (17).doc



Edition

E+ERCISE 17,: (Co"!i"&e8)

(c) If Es-& 8i8 "o! 8ecl-re or p-' - preferre8 8i%i8e"8 i" 93150

e-r"i"#s per s.-re for !.e 'e-r e"8e8 $ecember 10 9315<o&l8 rem-i" &"c.-"#e8 -! /6 (s-me -s c-lc&l-!e8 i"p-r! (-))6 T.is is bec-&se !.e preferre8 s.-res -rec&m&l-!i%e0 -"8 if !.e 8i%i8e"8 is "o! 8ecl-re8 i" !.ec&rre"! 'e-r0 -" -mo&"! e&-l !o !.e 8i%i8e"8 !.-! s.o&l8.-%e bee" 8ecl-re8 for !.e c&rre"! 'e-r o"l' s.o&l8 bes&b!r-c!e8 from "e! i"come6

(8) If Es-& 8ecl-re8 -"8 p-i8 !<o 'e-rs of 8i%i8e"8s i" -rre-rs0-lo"# <i!. !.e c&rre"! 'e-r preferre8 8i%i8e"8 i" 93150

e-r"i"#s per s.-re for !.e 'e-r e"8e8 $ecember 10 9315<o&l8 rem-i" &"c.-"#e8 -! /6 (s-me -s c-lc&l-!e8 i"p-r! (-))6 T.is is bec-&se 8i%i8e"8s i" -rre-rs for pre%io&s'e-rs <o&l8 .-%e bee" i"cl&8e8 i" !.e pre%io&s 'e-rs=c-lc&l-!io"s6

(e) If !.e preferre8 s.-res -re "o",c&m&l-!i%e0 -"8 !.e c&rre"!'e-r preferre8 8i%i8e"8 <-s p-i8 i" 93150 e-r"i"#s per s.-re for !.e 'e-r e"8e8 $ecember 10 9315 <o&l8 s!ill be

/6 (s-me -s c-lc&l-!e8 i" p-r! (-))6

(f) If !.e preferre8 s.-res -re "o",c&m&l-!i%e0 -"8 "opreferre8 8i%i8e"8 <-s 8ecl-re8 or p-i8 i" 93150 e-r"i"#sper s.-re for !.e 'e-r e"8e8 $ecember 10 9315 <o&l8 be/561 (/202330333 4 100)6

(g) A s!oc; spli! (<.ic. o"l' i"cre-ses !.e "&mber of s.-reso&!s!-"8i"#) <ill res&l! i" 8ecre-se8 m-r;e! price per s.-re0 m-;i"# !.e s.-res more -ffor8-ble !o !.e m-ori!' of

po!e"!i-l i"%es!ors6 A c&rre"! s.-re.ol8er <ill li;el' f-%o&r !.e comp-"'=s 8ecl-r-!io" of - s!oc; spli!0 bec-&se if !.ecomp-"'=s s.-res -re m-8e more -ffor8-ble !o !.em-ori!' of i"%es!ors0 !.e s.-re.ol8er=s s.-res <ill -lso bemore m-r;e!-ble0 -"8 <ill li;el' i"cre-se i" %-l&e -s -res&l! of !.e s!oc; spli!6


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,7 (93,92 mi"&!es)

(-)

E-r"i"#s per commo" s.-reI"come before loss from 8isco"!i"&e8 oper-!io"s /9653Loss from 8isco"!i"&e8 oper-!io"s0 "e! of !-x (61)Ne! i"come /9699

I"come 8-!-I"come before 8isco"!i"&e8 oper-!io"s /303330333$e8&c! /: per s.-re 8i%i8e"8 o" preferre8 s.-res 2530333

I"come !o commo" before 8isco"!i"6 oper-!io"s 9?05:30333

$e8&c! 8isco"!i"&e8 oper-!io"s loss0 "e! of !-x 909320333

Ne! i"come -%-il-ble for commo" s.-re.ol8ers /9709220333

$-!esO&!s!-"8i"#

S.-resO&!s!-"8i"#

Fr-c!io"of @e-r

ei#.!e8S.-res

-"&-r' 1April 1April 1$ecember 1

11023303331902330333

419?419

90720333?0720333


/9?05:30333 1909230333 s.-res > /9653 per s.-re(i"come before 8isco"!i"&e8 oper-!io"s loss)

/909320333 1909230333 s.-res > /61 per s.-re(8isco"!i"&e8 oper-!io"s loss "e! of !-x)

/9709220333 1909230333 s.-res > /9699 per s.-re("e! i"come)


.

7/25/2019 sm ch (17).doc




(b)

E-r"i"#s per commo" s.-reI"come before loss from 8isco"!i"&e8 oper-!io"s /9633Loss from 8isco"!i"&e8 oper-!io"s0 "e! of !-x (612)Ne! i"come /162

$-!esO&!s!-"8i"#

S.-resO&!s!-"8i"#

Res!-,!eme"!

Fr-c!io"of @e-r

ei#.!e8S.-res

-"6 1Apr6 1

Apr6 1Sep6 1Sep6 1$ec6 1

1102330333

19023303331203330333

169

169

419

24195419

05230333

:09230333203330333


/9?05:30333 1507330333 s.-res > /9633 per s.-re(i"come before 8isco"!i"&e8 oper-!io"s loss)

/909320333 1507330333 s.-res > /612 per s.-re(8isco"!i"&e8 oper-!io"s loss "e! of !-x)

/9709220333 1507330333 s.-res > /162 per s.-re

("e! i"come)


.

7/25/2019 sm ch (17).doc



E+ERCISE 17, (93,92 mi"&!es)

(-)

E%e"!$-!es

O&!s!-"8i"#S.-res

O&!s!-"8i"#Fr-c!io"of @e-r

ei#.!e8S.-res


Re-c&ire8 s.-res

-"6 1April 1April 1Oc!6 1

Oc!6 1$ec6 1

?330333105230333

101530333

419:419

419

99203337920333

920333

ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"#&"-8&s!e8 10920333S!oc; 8i%i8e"80 9412412 1632

ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"#-8&s!e8 109?:0723

Ne! i"come /90130333Preferre8 8i%i8e"8 (930333 + /23 + 7) (?30333)

/101230333

E-r"i"#s per s.-re for 9315

go#tstandinshareso n#m%eraverageWeightedsharescommontoa&&'ica%'e income et >

1,2"!,750$1,150,000 > /36?


.

7/25/2019 sm ch (17).doc



E+ERCISE 17, (Co"!i"&e8)

(b) $i%i8e"8 -rre-rs o" preferre8 s.-res of prior 'e-rs !.-! -re p-i8

i" !.e c&rre"! 'e-r 8o "o! -ffec! !.e c-lc&l-!io" of e-r"i"#s per s.-re6 T.e -rre-rs -re o&!s!-"8i"# -s of $ecember 10 93150 b&!!.e e-r"i"#s per s.-re c-lc&l-!io" of !.e prior 'e-r .-s !-;e"i"!o -cco&"! !.e re8&c!io" from i"come of o"e 'e-r=se"!i!leme"! for !.e preferre8 8i%i8e"8s0 <.e!.er p-i8 or "o!6 T.isis !.e c-se bec-&se !.e preferre8 s.-res -re c&m&l-!i%e6

T.e $ecember 10 9315 "o!es !o fi"-"ci-l s!-!eme"!s <o&l8re%e-l0 -s - m-!!er of s&bse&e"! e%e"! 8isclos&re0 !.e 8e!-ils of !.e p-'me"! of !.e 8i%i8e"8 -rre-rs -lo"# <i!. !.e 8ecl-r-!io" of

!.e 2 s!oc; 8i%i8e"86 T.e "o!e <o&l8 -lso me"!io" <.' !.eeffec! of !.e s!oc; 8i%i8e"8 <-s i"cl&8e8 re!ro-c!i%el' i" !.ec-lc&l-!io" of !.e <ei#.!e8 -%er-#e "&mber of s.-reso&!s!-"8i"# for 93156

(c) As s!-!e8 i" (b) !.e -""&-l 8i%i8e"8 e"!i!leme"! for 8i%i8e"8s is!-;e" -s - 8e8&c!io" from i"come i" !.e "&mer-!or of !.e EPSr-!io e-c. 'e-r (for !.-! 'e-r o"l') <.e!.er !.e 8i%i8e"8 is8ecl-re8 or "o!6 T.e c-lc&l-!io" -ppro-c. for e-r"i"#s per s.-re <ill rem-i" &"c.-"#e8 i" spi!e of !.e f-c! !.-! !.ere -rese%er-l 'e-rs of 8i%i8e"8 -rre-rs6


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,? (93,92 mi"&!es)

(-) Re%e"&es /170233

Expe"sesO!.er !.-" i"!eres! /0533Bo"8 i"!eres! (72 + /10333 + 63) :0333 150533

I"come before i"come !-x 0133

I"come !-x (3) ?3

Ne! i"come / 90173

$il&!e8 e-r"i"#s per s.-re (see "o!e)

/90173 D J(1 63) + (/:0333)K > /:073 > /36:7

90333 D (72 + 133) ?0233

(b) Re%e"&es /170233Expe"ses

O!.er !.-" i"!eres! /0533Bo"8 i"!eres!

(72 + /10333 + 63 + 5419) 90333 130533I"come before i"come !-x 70133

I"come !-x (3) 9013

Ne! i"come / 50?73

$il&!e8 e-r"i"#s per s.-re

/50?73 D J(1 63) + (/90333)K > /:073 > /165990333 D (72 + 133 + 5419) 50233


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,? (Co"!i"&e8)

(c) Re%e"&es /170233

Expe"sesO!.er !.-" i"!eres! /0533Bo"8 i"!eres! (72 + /10333 + 63 + 149) 0333

(23 + /10333 + 63 + 149) 90333 10533I"come before i"come !-x 50133

I"come !-x (3) 1093Ne! i"come / 9073

$il&!e8 e-r"i"#s per s.-re (see "o!e)

/9073 D J(1 63) + (/20333)K > /:073 > /36:7J90333 D (90233 + 149)K D J20333 D (90233 + 149)K ?0233

No!e T.e -"s<er is !.e s-me -s (-)6 I" bo!. (-) -"8 (c)0 !.ebo"8s -re -ss&me8 co"%er!e8 for !.e e"!ire 'e-r6

$iscl-imer For simplici!'0 i#"ore !.e IFRS re&ireme"! !o recor8 !.e8eb! -"8 e&i!' compo"e"!s of !.e bo"8s sep-r-!el'6


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,13 (93,92 mi"&!es)

(-) (1) N&mber of s.-res for b-sic e-r"i"#s per s.-re6

$-!esO&!s!-"8i"#

S.-resO&!s!-"8i"#

Fr-c!io"of @e-r

ei#.!e8S.-res

-"61April 1Apr61$ec6 1

330333109330333

419?419

9330333 ?330333


OR

N&mber of s.-res for b-sic e-r"i"#s per s.-reI"i!i-l iss&e of s.-res 330333 s.-res

April 10 9315 iss&e (?419 + 5330333) 330333 s.-resTo!-l 101330333 s.-res

(9) N&mber of s.-res for 8il&!e8 e-r"i"#s per s.-re6

$-!esO&!s!-"8i"#

S.-resO&!s!-"8i"#

Fr-c!io"of @e-r

ei#.!e8S.-res

-"6 1April 1April 1&l' 1

&l' 1$ec6 1

330333109330333

109950333

419419

:419

9330333 330333

:190333ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"# 101190333

109330333 D J(/:330333 /10333) + 53K

(b) (1) E-r"i"#s for b-sic e-r"i"#s per s.-reAf!er !-x "e! i"come /102530333

(9) E-r"i"#s for 8il&!e8 e-r"i"#s per s.-reAf!er !-x "e! i"come /102530333A88 b-c; i"!eres! o" co"%er!ible

bo"8s ("e! of !-x)

I"!eres! (Sc.e8&le 1) /950?9Less i"come !-x (3) 705:

170595

To!-l /102270595


.

7/25/2019 sm ch (17).doc


7/25/2019 sm ch (17).doc



E+ERCISE 17,11 (93,92 mi"&!es)

(-)

B-sic EPS /702330333 903330333 s.-res > /672

Po!e"!i-l 8il&!io" if !.e co"%er!ible 8ebe"!&res .-8 bee" co"%er!e8o" -"&-r' 90 9315

A88i!io"-l i"come !o commo"C-rr'i"# -mo&"! of 8ebe"!&res /5M + 6? > /0?930333I"!eres! expe"se0 9315 /0?930333 + 769: > /92071

1 !-x r-!e (92) > + 672Af!er,!-x i"!eres! / 915092

A88i!io"-l commo" s.-res/5033303334/10333 > 50333 8ebe"!&resI"cre-se i" 8il&!e8 e-r"i"#s per s.-re 8e"omi"-!or

50333+ 1790333

/915092 > /96? /96? /672 !.erefore is 8il&!i%e 790333

$il&!e8 E-r"i"#s per S.-re/702330333 D /915092 > /70715092 > /679 903330333 D 790333 903790333


.

7/25/2019 sm ch (17).doc




(b) If !.e co"%er!ible sec&ri!' <ere preferre8 s.-res0 b-sic EPS<o&l8 be c-lc&l-!e8 -f!er 8e8&c!i"# preferre8 s.-re 8i%i8e"8e"!i!leme"! (for c&m&l-!i%e s.-res) -"8 preferre8 8i%i8e"8s8ecl-re8 (for "o",c&m&l-!i%e s.-res)6 T.is <o&l8 re8&ce !.eb-sic EPS belo< !.e -mo&"! i" p-r! (-) if !.ere <ere -"' -mo&"!-!!rib&!e8 !o preferre8 s.-re.ol8ers6 No!e !.-! !.ere <o&l8 be "o!-x implic-!io"s o" !.e p-'me"! of 8i%i8e"8s6

Nex!0 !.e !es! <o&l8 be 8o"e !o see if !.e co"%ersio" of !.epreferre8 s.-res <-s0 i" f-c!0 8il&!i%e6 If !.e rel-!io"s.ip be!<ee"

!.e preferre8 e"!i!leme"! 8i%i8e8 b' !.e i"cre-se8 "&mber of commo" s.-res is #re-!er !.-" b-sic EPS0 b-sic -"8 8il&!e8 EPS<o&l8 be !.e s-me "&mber6 If !.e rel-!io"s.ip is less !.-" b-sicEPS0 !.e" !.e "&mer-!or for b-sic <o&l8 be i"cre-se8 b' !.epreferre8 e"!i!leme"! pre%io&sl' 8e8&c!e86 T.e 8e"omi"-!or <o&l8 be i"cre-se8 -bo%e !.e b-sic EPS 8e"omi"-!or b' !.e-88i!io"-l "&mber of commo" s.-res !.-! <o&l8 be iss&e8 o"co"%ersio" of !.e preferre86

(c) Al!.o&#. !.e -mo&"! of i"!eres! is "o! -c!&-ll' s-%e8

imme8i-!el'0 !.e re8&c!io" of !.e expe"se 8ecre-ses !.e -mo&"!of !.e "e! loss &se8 i" !.e EPS c-lc&l-!io"6 T.e correspo"8i"#-mo&"! of !-x -pplic-ble !o !.is s-%i"#s <ill -lso re8&ce -"'i"come !-x !.-! is reco%ere8 from -ppl'i"# !.e c&rre"! 'e-r=sloss b-c; !o -"' of !.e !.ree pre%io&s !-x-ble fisc-l 'e-rs or -ccr&e8 -s - f&!&re !-x from c-rr'i"# - sm-ller -mo&"! of lossfor<-r86 T.e -cco&"!i"# -"8 !-x co"se&e"ces <ill be -ccr&e8-"8 so !.e effec! o" EPS s.o&l8 -lso be i"cl&8e8 i" !.e c&rre"!'e-r6



.

7/25/2019 sm ch (17).doc



E+ERCISE 17,19 (13,12 mi"&!es)

(-)B-sic EPS > /9230333 1330333 > /9623 per s.-re

If bo"8s <ere co"%er!e8 !o commo"I"!eres! s-%i"#s ("e! of !-x)

(902330333 + 7 + (1 63)K /1990233

A88i!io"-l commo" s.-res/902330333 /10333 > 90233 bo"8s

+ 12

70233 s.-res

Effec! of co"%ersio" /1990233 70233 > /697 per -88i!io"-l s.-re (/697 /9623)

T.erefore0 !.ese bo"8s <o&l8 be -"!i,8il&!i%e6 Proof

Ne! i"come /9230333A88 I"!eres! s-%i"#s ("e! of !-x)

J/1720333 + (1 63)K

1990233A8&s!e8 "e! i"come /790233

$il&!e8 EPS /790233 (1330333 D 70233) > /9671

B-sic -"8 8il&!e8 EPS bo!. > /9623

(b) B-sic EPSI"come !o commo" /9230333 /1320333 > /1520333T.e preferre8 s.-res -re c&m&l-!i%e so !.e' -re e"!i!le8 !o

- 7 8i%i8e"8 (/162 M + 7 > /1320333)6

B-sic EPS /1520333 1330333 > /1652


.

7/25/2019 sm ch (17).doc




Effec! of co"%ersio" of preferre8 s.-resA88i!io"-l i"come !o commo" > /1320333A88i!io"-l commo" s.-res o&!s!-"8i"#

S.-res -ss&me8 !o be iss&e8 (120333 + 5) :30333 /102330333 /133

Effec! of co"%ersio" /1320333 :30333 > /1672 per -88i!io"-l s.-re (/1672 /1652)

T.erefore0 !.e preferre8 s.-res <o&l8 be -"!i,8il&!i%e6

Proof

I"come !o commo" for b-sic EPS /1520333A88 8i%i8e"8 s-%i"#s0 if co"%er!e8 1320333A8&s!e8 "e! i"come for commo" /9230333

$il&!e8 EPS /9230333 (1330333 D :30333) > /162:

T.erefore0 bo!. b-sic -"8 8il&!e8 EPS > /1652



.

7/25/2019 sm ch (17).doc



E+ERCISE 17,1 (3,2 mi"&!es)

(-)

B-sic E-r"i"#s Per S.-re I"come S.-res EPSI"come /5330333

$i%i8e"8s o" Preferre8 s.-res

(/230333 + 2) (90233)

B-sic EPS /?70233 :30333 /:6:

(b) I"8i%i8&-l e-r"i"#s per s.-re c-lc&l-!io"s -re 8o"e for e-c.po!e"!i-ll' 8il&!i%e sec&ri!' !o 8e!ermi"e if !.e sec&ri!ies -re i"f-c! 8il&!i%e0 <.e" comp-re8 !o b-sic e-r"i"#s per s.-re of

/:6:6 T.is is of!e" ;"o<" -s -" -"!i,8il&!i%e !es!6 O"l' 8il&!i%esec&ri!ies <ill be &se8 i" !.e c-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-re6 T.e effec! of co"%ersio"4exercise of e-c. sec&ri!' <ill be-pplie8 !o !.e c-lc&l-!io" i" !.e se&e"ce of mos! 8il&!i%e !ole-s! 8il&!i%e0 i" or8er !o -rri%e -! !.e mos! 8il&!e8 e-r"i"#s per s.-re res&l!6

For co"%er!ible preferre8 s.-res$i%i8e"8s -%oi8e8 from co"%ersio" 2 + /230333 s.-res >

/90233 8i%i8e8 b' 10333 -88i!io"-l commo" s.-res (/2303338i%i8e8 b' p-r %-l&e /133 + !<o s.-res) > /9623 /:6: R-";e8mos! 8il&!i%e6

For 13 co"%er!ible bo"8sM-!&ri!' %-l&e /1330333S!-!e8 r-!e + 13I"!eres! expe"se 130333

1 !-x r-!e (95) + 67:Af!er,!-x i"!eres! / 70:33

/13303334/10333 > 133 bo"8sI"cre-se i" 8il&!e8 e-r"i"#s per s.-re 8e"omi"-!or

133 + 92

90233


.

7/25/2019 sm ch (17).doc



I"8i%i8&-l EPS c-lc&l-!io" /70:33 4 90233 > /635 /:6: R-";e8 less 8il&!i%e !.-" !.e co"%er!ible preferre8 s.-res6


.

7/25/2019 sm ch (17).doc




$il&!e8 E-r"i"#s Per S.-re I"come S.-res EPS

B-sic /?70233 :30333 /:6:Preferre8 s.-res 90233 10333

/5330333 :10333 /:62:

Bo"8s 70:33 90233

$il&!e8 E-r"i"#s Per S.-re /5370:33 :0233 /:659

(c)

B-sic E-r"i"#s Per S.-re I"come S.-res EPS

I"come /5330333$i%i8e"8s o" Preferre8 s.-res

(/230333 + 15) (70333)

B-sic EPS /?0333 :30333 /:622

I"8i%i8&-l e-r"i"#s per s.-re c-lc&l-!io"s -re 8o"e for e-c.po!e"!i-ll' 8il&!i%e sec&ri!' !o 8e!ermi"e if !.e sec&ri!ies -re i"f-c! 8il&!i%e0 <.e" comp-re8 !o b-sic e-r"i"#s per s.-re of /:6226 O"l' 8il&!i%e sec&ri!ies <ill be &se8 i" !.e c-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-re6 T.e effec! of co"%ersio"4exercise of e-c. sec&ri!' <ill be -pplie8 !o !.e c-lc&l-!io" i" !.e se&e"ceof mos! 8il&!i%e !o le-s! 8il&!i%e0 i" or8er !o -rri%e -! !.e mos!8il&!e8 e-r"i"#s per s.-re res&l!6


/70333 8i%i8e8 b' 10333 -88i!io"-l commo" s.-res (/2303338i%i8e8 b' p-r %-l&e /133 + !<o s.-res) > /7633 <.ic. is /:6226

A"' co"%ersio" of preferre8 s.-res is -"!i,8il&!i%e -"8 !.ereforeexcl&8e8 from !.e c-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-re6


.

7/25/2019 sm ch (17).doc





B-sic /?0333 :30333 /:622Bo"8s 70:33 90233

$il&!e8 E-r"i"#s Per S.-re /5330:33 :90233 /:651



.

7/25/2019 sm ch (17).doc



E+ERCISE 17,15 (3,2 mi"&!es)

(-) N&mber of s.-res for b-sic e-r"i"#s per s.-re6

$-!esO&!s!-"8i"#

S.-resO&!s!-"8i"#

Fr-c!io"of @e-r

ei#.!e8S.-res

-"6 1April 1April 1$ec6 1

:30333:10333

419?419

120333

520723ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"# :30723

N&mber of -88i!io"-l commo" s.-res iss&e8 from !.e co"%ersio"of 53 of !.e co"%er!ible bo"8s > /1330333 4 /10333 p-r %-l&e +

53 > 53 bo"8s + 92 commo" s.-res b-se8 o" !.e co"%ersio"r-!io > 10333 commo" s.-res

(b)


I"come /539093


(/230333 + 2) (90233)

B-sic EPS /??073 :30723 /:62

Ne! i"come is i"cre-se8 b' -f!er !-x cos! of i"!eres! s-%e8 o" !.e53 co"%ersio" of !.e bo"8s/1330333 + 13 + 53 + ?419 + (1 , 95) > /9093

(c)I"8i%i8&-l e-r"i"#s per s.-re c-lc&l-!io"s -re 8o"e for e-c.po!e"!i-ll' 8il&!i%e sec&ri!' !o 8e!ermi"e if !.e sec&ri!ies -re i"f-c! 8il&!i%e0 <.e" comp-re8 !o b-sic e-r"i"#s per s.-re of

/:626 O"l' 8il&!i%e sec&ri!ies <ill be &se8 i" !.e c-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-re6 T.e effec! of co"%ersio"4exercise of e-c. sec&ri!' <ill be -pplie8 !o !.e c-lc&l-!io" i" !.e se&e"ceof mos! 8il&!i%e !o le-s! 8il&!i%e0 i" or8er !o -rri%e -! !.e mos!8il&!e8 e-r"i"#s per s.-re res&l!6


.

7/25/2019 sm ch (17).doc




For co"%er!ible preferre8 s.-res

$i%i8e"8s -%oi8e8 from co"%ersio" 2 + /230333 s.-res >/90233 8i%i8e8 b' 10333 -88i!io"-l commo" s.-res (/2303338i%i8e8 b' p-r %-l&e /133 + !<o s.-res) > /9623 /:62 R-";e8mos! 8il&!i%e6

For 13 co"%er!ible bo"8sM-!&ri!' %-l&e rem-i"i"# bo"8s /1330333S!-!e8 r-!e + 13I"!eres! expe"se 130333

1 !-x r-!e (95) + 67:

Af!er,!-x i"!eres! 70:33Less -mo&"! s-%e8 from 53 co"%ersio" 9093N&mer-!or effec! /2093


133 + 92

90233 less "&mber o" co"%ersio" 723 (10333 s.-res +?419) > 10723

I"8i%i8&-l EPS c-lc&l-!io" /2093 4 10723 > /635 /:6: R-";e8le-s! 8il&!i%e6


B-sic /??073 :30723 /:62Preferre8 s.-res 90233 10333

/539093 :10723 /:621

Bo"8s 2093 10723

$il&!e8 E-r"i"#s Per S.-re /5370:33 :0233 /:659

(8) I! is "o! - coi"ci8e"ce !.-! !.e 8il&!e8 e-r"i"#s per s.-re res&l!srem-i" !.e s-me0 -s !.e c-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-reis me-"! !o sim&l-!e !.e effec! of co"%ersio"0 -"s<eri"# !.e&es!io" .-! is !.e <ors! possible e-r"i"#s per s.-reQ I!


.

7/25/2019 sm ch (17).doc



s.o&l8 !.erefore be !.e s-me -s !.e -c!&-l EPS if -ll co"%er!iblesec&ri!ies -re -c!&-ll' co"%er!e86


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,12 (12,93 mi"&!es)

(-)

B-sic E-r"i"#s Per S.-re I"come S.-res EPSNe! I"come /230333


(/1330333 + 5) (50333)

B-sic EPS /5:0333 130333 /56:3

(b)To 8e!ermi"e !.e 8il&!i%e effec! of !.e co"%er!ible i"s!r&me"!s0 -"-ss&mp!io" (#e"er-ll' referre8 !o -s !.e if,co"%er!e8 me!.o8) is m-8e!.-! -ll of !.e co"%er!ible i"s!r&me"!s (bo!. !.e bo"8s -"8 !.epreferre8 s.-res i" !.is c-se) -re co"%er!e8 -! !.e e-rlies! 8-!e !.-!!.e' co&l8 .-%e bee" 8&ri"# !.e 'e-r6 T.e effec!s of !.is -ss&mp!io"-re !<ofol8 (1) if !.e bo"8s -re co"%er!e8 !.e" !.ere <ill be "oi"!eres! expe"se (!.&s res&l!i"# i" more i"come !-x expe"se)0 -"8simil-rl' if !.e preferre8 s.-res -re co"%er!e8 !.ere <ill be "opreferre8 8i%i8e"8s p-i80 -"8 (9) !.ere <ill be -88i!io"-l commo"s.-res o&!s!-"8i"# 8&ri"# !.e 'e-r6

(c)I"8i%i8&-l e-r"i"#s per s.-re c-lc&l-!io"s -re 8o"e for e-c.po!e"!i-ll' 8il&!i%e sec&ri!' !o 8e!ermi"e if !.e sec&ri!ies -re i" f-c!8il&!i%e0 <.e" comp-re8 !o b-sic e-r"i"#s per s.-re of /56:36 O"l'8il&!i%e sec&ri!ies <ill be &se8 i" !.e c-lc&l-!io" of 8il&!e8 e-r"i"#sper s.-re6 T.e effec! of co"%ersio"4exercise of e-c. sec&ri!' <ill be-pplie8 !o !.e c-lc&l-!io" i" !.e se&e"ce of mos! 8il&!i%e !o le-s!8il&!i%e0 i" or8er !o -rri%e -! !.e mos! 8il&!e8 e-r"i"#s per s.-reres&l!6


.

7/25/2019 sm ch (17).doc




For 7 co"%er!ible bo"8s

M-!&ri!' %-l&e of bo"8s /9330333S!-!e8 r-!e + 7I"!eres! expe"se 150333

1 !-x r-!e (92) + 672Af!er,!-x i"!eres! !.-! <o&l8 .-%e bee" s-%e8 130233

I"cre-se i" 8il&!e8 e-r"i"#s per s.-re 8e"omi"-!or933 + 53 > 0333 -88i!io"-l s.-res

I"8i%i8&-l EPS c-lc&l-!io" /130233 4 0333 > /161 /56:3 R-";e8

mos! 8il&!i%e6


/50333 8i%i8e8 b' 90333 -88i!io"-l commo" s.-res (10333preferre8 s.-res + !<o s.-res) > /9633 /56:3 R-";e8 le-s!8il&!i%e6


B-sic /5:0333 130333 /56:3Bo"8s 130233 0333

/2:0233 10333 /615

Preferre8 s.-res 50333 90333

$il&!e8 E-r"i"#s Per S.-re /:30233 930333 /63



.

7/25/2019 sm ch (17).doc




(8)

.e" H-'<-r8 Corpor-!io" iss&e8 !.e 7 co"%er!ible bo"8s0 !.ecomp-"'=s i"!eres! r-!e o" s!r-i#.! 8eb! <-s .i#.er !.-" 76 T.eco"%er!ible bo"8s <ere iss&e8 -! p-r0 me-"i"# !.-! !.e m-r;e! r-!e of i"!eres! o" !.e co"%er!ible bo"8s <-s e&-l !o !.e s!-!e8 r-!e of i"!eres! (7)6 T.e co"%ersio" pri%ile#e e"!ices !.e i"%es!or !o -ccep!- lo<er i"!eres! r-!e !.-" <o&l8 "orm-ll' be !.e c-se o" - s!r-i#.!8eb! iss&e0 !.erefore !.e m-r;e! r-!e of i"!eres! o" !.e co"%er!iblebo"8s (7) <o&l8 be lo<er !.-" !.e comp-"'=s i"!eres! r-!e o"

s!r-i#.! 8eb! -! !.e !ime of iss&-"ce6


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,1: (93,92 mi"&!es)

(-) Si"ce !.e op!io"s -re i" !.e mo"e' (ie6 T.e exercise

price is belo< !.e -%er-#e m-r;e! price)0 !.e' <ill be8il&!i%e -"80 !.erefore0 -re i"cl&8e8 i" !.e c-lc&l-!io" of8il&!e8 EPS6

$il&!e8

S.-res -ss&me8 iss&e8 o" exerciseProcee8s (10333 + /15 > /150333)Tre-s&r' s.-res (/1503334/93)

I"creme"!-l s.-res

10333

733 33

$il&!e8 EPS > 33230333/?30333

> /167? (ro&"8e8)

(b) $il&!e8

S.-res -ss&me8 iss&e8 o" exerciseProcee8s > /150333Tre-s&r' s.-res (/150333 4 /93)

I"creme"!-l s.-res

10333

733 33

+ 419 72

$il&!e8 EPS > 72230333

/?30333

> /163

(c) The put options are not in the money (exercise price < marketprice) in this case since the exercise price is $10 and the marketprice is $20. Therefore, these put options would be excludedfrom the calculation of diluted earnings per share.


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,17 (12,93 mi"&!es)

(-) T.e <-rr-"!s -re 8il&!i%e bec-&se !.e op!io" price (/13) is less

!.-" !.e -%er-#e m-r;e! price (/9)6

(b) B-sic EPS > /563(/530333 1330333 s.-res)

(c) $il&!e8 EPS > /56:(/530333 1130175 s.-res)

Procee8s from -ss&me8 exercise

(10333 <-rr-"!s + /13 exercise price)Tre-s&r' s.-res p&rc.-s-ble <i!. procee8s

(/130333 /9 -%er-#e m-r;e! price)

I"creme"!-l s.-res iss&e8

(10333 s.-res iss&e8 less 709: p&rc.-se8)

/130333

709:

130175


.

7/25/2019 sm ch (17).doc



E+ERCISE 17,1 (13,12 mi"&!es)

(-) T.e co"!i"#e"! s.-res <o&l8 .-%e !o be reflec!e8 i" 8il&!e8

e-r"i"#s per s.-re bec-&se !.e e-r"i"#s le%el is c&rre"!l' bei"#-!!-i"e86 F&ll 8isclos&re of !.is co"!i"#e"! s.-re iss&e <o&l8 bepro%i8e8 i" !.e "o!es !o !.e fi"-"ci-l s!-!eme"!s6 (IAS62)

(b) Bec-&se !.e e-r"i"#s le%el is "o! bei"#c&rre"!l' -!!-i"e80 co"!i"#e"! s.-res -re "o! i"cl&8e8 i" !.ec-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-re6 F&ll 8isclos&re of !.isco"!i"#e"! s.-re iss&e <o&l8 be pro%i8e8 i" !.e "o!es !o !.efi"-"ci-l s!-!eme"!s6 (IAS62)

(c) If co"!i"#e"!l' iss&-ble s.-res -re iss&-ble b-se8 o"pre8e!ermi"e8 co"8i!io"s (e6#6 profi! le%els or perform-"ce!-r#e!s)0 !.e' -re i"cl&8e8 i" !.e c-lc&l-!io" of b-sic EPS <.e"!.e co"8i!io"s -re s-!isfie86 I" p-r! (-)0 !.e co"8i!io"s for iss&-"ce of -88i!io"-l s.-res specific-ll' re&ire !.-! T-r#e!-c.ie%e - cer!-i" le%el of "e! i"come i" 9312 .o<e%er0 !.e le%elof "e! i"come is -c.ie%e8 i" 93150 !.erefore !.e co"!i"#e"!s.-res m&s! be i"cl&8e8 i" !.e 9315 e-r"i"#s per s.-rec-lc&l-!io"s6 *l!im-!el'0 T-r#e! m-' "o! -c.ie%e !.e re&ire8le%el of "e! i"come i" 9312 (i" <.ic. c-se0 !.e -88i!io"-l s.-res<o&l8 "o! be iss&e8 !o T-r#e!=s s.-re.ol8ers i" 931:)6 Ho<e%er0b-se8 o" 9315 "e! i"come0 i! is prob-ble !.-! T-r#e! <ill -c.ie%e!.e re&ire8 le%el of "e! i"come i" 93126 Prob-ble iss&-"ce of !.e -88i!io"-l s.-res is reflec!e8 i" !.e 9315 e-r"i"#s per s.-rec-lc&l-!io"s0 !o m-i"!-i" rele%-"ce (pre8ic!i%e %-l&e)0 -"8represe"!-!io"-l f-i!.f&l"ess ("e&!r-li!') of !.e fi"-"ci-ls!-!eme"!s6


.

7/25/2019 sm ch (17).doc



TIME AN$ P*RPOSE OF PROBLEMS

)roblem ".6"

9Time $+6#+ minutes:

)ur(oseto (ro!ide the student 4ith some familiarity 4ith the a((lications of GAA)4hen dealing 4ith earnings (er share& The student is re;uired to e2(lain the generalconce(ts of E)* in regard to a s(ecific ca(itali<ation structure, and to discuss the(ro(er treatment, if any, that should be gi!en to a list of items in com(uting earnings (er common share for financial statement re(orting&

)roblem ".6$ 9Time $16#1 minutes:

)ur(osethe student calculates the 4eighted a!erage number of common shares for com(uting earnings (er share and (re(ares a com(arati!e income statement includingearnings (er share data& In addition, the student e2(lains a sim(le ca(ital structure andthe earnings (er share (resentation for a com(le2 ca(ital structure&

)roblem ".6# 9Time $16$+ minutes:

)ur(oseto (ro!ide the student 4ith some familiarity 4ith the effect of (ut and callo(tions on the diluted earnings (er share calculation& A sim(le 4eighted a!eragenumber of common shares outstanding is also included&

)roblem ".6%

9Time $16$+ minutes:

)ur(osebuilding on the calculations of )roblem ".6"#, in!ol!ing (ut and call o(tions,

the student continues 4ith the same data and must arri!e at basic and diluted earnings(er share amounts, taking into account additional (otentially diluti!e securities&

)roblem ".6+ 9Time #16%1 minutes:

)ur(oseto (ro!ide the student 4ith a com(rehensi!e (roblem 4ith the calculation ofthe 4eighted a!erage number of shares outstanding, disclosure of E)* for adiscontinued o(eration and the calculation of basic and diluted E)*& The student mustalso (re(are in the (ro(er format the bottom (ortion of the statement of income, starting4ith the ca(tion Income before discontinued o(erations&

)roblem ".6-

9Time #16#+ minutes:

Purpose—to provide the student with an understanding of the proper calculation of the4eighted a!erage number of shares outstanding for t4o consecuti!e years& The studentis also asked to determine 4hether the ca(ital structure (resented is sim(le or com(le2&

A t4o6year com(arati!e income statement 4ith a((ro(riate E)* (resentation is alsore;uired&


.

7/25/2019 sm ch (17).doc



TIME AN$ P*RPOSE OF PROBLEMS (CONTIN*E$)

)roblem ".6.

9Time #+6%+ minutes:

)ur(osethe calculation of the number of shares used to calculate basic and dilutedearnings (er share is complicated by a stock dividend, a stock split, and several issuesof common shares during the year. The student must calculate the numerator forcomputing basic EPS.

)roblem ".6/ 9Time #16#+ minutes:

)ur(oseto (ro!ide the student 4ith an understanding of the effect o(tions andcon!ertible bonds ha!e on the calculation of 4eighted a!erage number of sharesoutstanding 4ith regard to basic E)* and diluted E)*& )referred share di!idends mustalso be calculated& Each (otentially diluti!e security must first be tested for (otential

dilution and if found to be (otentially diluti!e, is used in most to least descending order in the calculation of diluted earnings (er share&

)roblem ".60


)ur(oseto (ro!ide the student a (roblem 4ith multi(le diluti!e securities, 4hich mustbe analy<ed to calculate basic and diluted E)*& *tudent must rank the (otentiallydiluti!e securities in the most to least diluti!e order in order to arri!e at the a((ro(riatediluted earnings (er shares&

)roblem ".6"1


)ur(oseto (ro!ide the student 4ith a com(rehensi!e (roblem 4ith multi(le diluti!esecurities, 4hich must be analy<ed to calculate basic and diluted E)*& In this (roblem,a security initially a((ears to be diluti!e but once ranked in the calculation of dilutedearnings (er share, the security ends u( becoming antidiluti!e and must be e2cluded inthe calculation of diluted earnings (er shares&

)roblem ".6""

9Time #16%1 minutes:

)ur(oseto (ro!ide the student 4ith an understanding of the (ro(er calculation of the4eighted a!erage number of shares outstanding during a (eriod (lus the (roceduresutili<ed in the =treasury stock method> for the calculation of E)*& The student is re;uiredto (re(are a schedule illustrating the number of common shares outstanding and tocalculate the E)* for a situation in!ol!ing o(tions outstanding since the beginning of theyear&


.

7/25/2019 sm ch (17).doc



TIME AN$ P*RPOSE OF PROBLEMS (CONTIN*E$)

)roblem ".6"$


)ur(oseto (ro!ide the student a (roblem 4ith multi(le diluti!e securities, 4hich mustbe analy<ed to calculate basic and diluted E)*& Each (otentially diluti!e security mustfirst be tested for (otential dilution and if found to be (otentially diluti!e, is used in mostto least descending order in the calculation of diluted earnings (er share&

)roblem ".6"# 9Time #16#+ minutes:

)ur(oseto (ro!ide the student 4ith a com(rehensi!e (roblem 4ith multi(le diluti!esecurities, 4hich must be analy<ed to calculate basic and diluted E)*& The studentmust first calculate the amount of interest e2(ense taking into account a discount onsome bonds a!ailable for con!ersion& The student must rank the (otentially diluti!e

securities in the most to least diluti!e order in order to arri!e at the a((ro(riate dilutedearnings (er share& Additional ;uestions in this (roblem deal 4ith the fre;uency of di!idend (ayments&

)roblem ".6"% 9Time $+6#1 minutes:

)ur(oseto (ro!ide the student 4ith a com(rehensi!e (roblem 4ith multi(le diluti!esecurities, 4hich must be analy<ed to calculate basic and diluted E)*& The studentmust first calculate the 4eighted a!erage number of shares outstanding& The studentmust rank the (otentially diluti!e securities in the most to least diluti!e order in order toarri!e at the a((ro(riate diluted earnings (er shares&


.

7/25/2019 sm ch (17).doc



SOL*TIONS TO PROBLEMS

PROBLEM 17,1

(-) E-r"i"#s per s.-re0 -s i! -pplies !o - corpor-!io" <i!. -c-pi!-li-!io" s!r&c!&re compose8 of o"l' o"e cl-ss of commo"s.-res0 is !.e -mo&"! of e-r"i"#s -pplic-ble !o e-c. commo"s.-re o&!s!-"8i"# 8&ri"# !.e perio8 for <.ic. !.e e-r"i"#s -rerepor!e86 T.e c-lc&l-!io" of e-r"i"#s per s.-re s.o&l8 be b-se8o" - <ei#.!e8 -%er-#e of !.e "&mber of s.-res o&!s!-"8i"#8&ri"# !.e perio8 <i!. re!ro-c!i%e reco#"i!io" #i%e" !o s!oc;spli!s or re%erse spli!s -"8 !o s!oc; 8i%i8e"8s6 T.e c-lc&l-!io"

s.o&l8 be m-8e for i"come from co"!i"&i"# oper-!io"s0 i"come(loss) from 8isco"!i"&e8 oper-!io"s0 -"8 "e! i"come6 Comp-"ies!.-! repor! - 8isco"!i"&e8 oper-!io" m&s! prese"! per s.-re-mo&"!s for !.is li"e i!em ei!.er o" !.e f-ce of !.e i"comes!-!eme"! or i" !.e "o!es !o !.e fi"-"ci-l s!-!eme"!s6

(b) Tre-!me"!s !o be #i%e" !o !.e lis!e8 i!ems i" c-lc&l-!i"# e-r"i"#sper s.-re -re

16 O&!s!-"8i"# preferre8 s.-res <i!. - p-r %-l&e li&i8-!io"

ri#.! iss&e8 -! - premi&m0 -l!.o&#. -ffec!i"# !.e8e!ermi"-!io" of boo; %-l&e per s.-re0 <ill "o! -ffec! !.ec-lc&l-!io" of e-r"i"#s per commo" s.-re excep! <i!.respec! !o !.e 8i%i8e"8s -s 8isc&sse8 i" (b) 56 belo<6

96 T.e exercise of - commo" s!oc; op!io" res&l!s i" -"i"cre-se i" !.e "&mber of s.-res o&!s!-"8i"#0 -"8 !.ec-lc&l-!io" of e-r"i"#s per s.-re s.o&l8 be b-se8 o" !.e<ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"# 8&ri"# !.eperio86 T.e exercise of - s!oc; op!io" b' !.e #r-"!ee 8oes

"o! -ffec! e-r"i"#s0 b&! -"' compe"s-!io" expe"se recor8e8rel-!i"# !o !.e #r-"!i"# of !.e op!io"s !o !.e officers <o&l8re8&ce "e! i"come -"8 e-r"i"#s per s.-re6


.

7/25/2019 sm ch (17).doc



PROBLEM 17,1 (Co"!i"&e8)

6 T.e repl-ceme"! of - m-c.i"e imme8i-!el' prior !o !.e closeof !.e c&rre"! fisc-l 'e-r <ill "o! -ffec! !.e c-lc&l-!io" of e-r"i"#s per s.-re for !.e 'e-r i" <.ic. !.e m-c.i"e isrepl-ce86 T.e "&mber of s.-res rem-i"s &"c.-"#e8 -"8si"ce !.e ol8 m-c.i"e <-s sol8 for i!s c-rr'in# -mo&"!0e-r"i"#s -re &"-ffec!e86

56 $i%i8e"8s 8ecl-re8 o" preferre8 s.-res s.o&l8 be 8e8&c!e8from i"come from co"!i"&i"# oper-!io"s -"8 "e! i"comebefore comp&!i"# e-r"i"#s per s.-re -pplic-ble !o !.ecommo" s.-res -"8 o!.er resi8&-l sec&ri!ies6 If !.e preferre8

s.-res -re c&m&l-!i%e0 !.is -8&s!me"! is -ppropri-!e<.e!.er or "o! !.e -mo&"!s of !.e 8i%i8e"8s -re 8ecl-re86

26 P&rc.-se8 c-ll op!io"s <ill -l<-'s be -"!i8il&!i%e for p&rposes of c-lc&l-!i"# 8il&!e8 e-r"i"#s per s.-re6 T.eseop!io"s <ill o"l' be exercise8 <.e" !.e' -re i" !.e mo"e'-"8 !.is <ill -l<-'s be f-%o&r-ble !o !.e comp-"'6 T.e' <ill!.erefore be excl&8e8 for p&rpose of !.e 8il&!io" c-lc&l-!io"6

:6 Ac&iri"# !re-s&r' s.-res <ill re8&ce !.e <ei#.!e8 -%er-#e

"&mber of s.-res o&!s!-"8i"# &se8 i" !.e EPS 8e"omi"-!or6

76 .e" !.e "&mber of commo" s.-res o&!s!-"8i"# i"cre-ses-s - res&l! of - 9,for,1 s!oc; spli! 8&ri"# !.e 'e-r0 !.ec-lc&l-!io" s.o&l8 be b-se8 o" !<ice !.e "&mber of <ei#.!e8-%er-#e s.-res o&!s!-"8i"# prior !o !.e s!oc; spli!6Re!ro-c!i%e reco#"i!io" s.o&l8 be #i%e" for -ll prior 'e-rsprese"!e86


.

7/25/2019 sm ch (17).doc



PROBLEM 17,9

(-) ei#.!e8 A%er-#e S.-res

BeforeS!oc;

$i%i8e"8

Af!er S!oc;

$i%i8e"8

To!-l -s of &"e 10 931Iss&e of Sep!ember 10 931To!-l -s of M-' 10 9315

16 M-' 10 9312 903730333 + 19419 >

96 107920333 + 419 >903730333 + ?419 >

To!-l0 M-' 10 9315

102330333 330333

10330333

107920333 520333

903730333

903730333

51092310229023310?0723

Effec! of !.e s!oc; 8i%i8e"8 is reflec!e8 o" M-' 10 9315 <ei#.!e8-%er-#e "&mber of s.-res for comp-r-!i%e p&rposes o" !.e 9312

fi"-"ci-l s!-!eme"!s6


.

7/25/2019 sm ch (17).doc




(b) LORETTA CORPORATIONComp-r-!i%e I"come S!-!eme"!For !.e @e-rs E"8e8 M-' 10 9312 -"8 9315

9312 9315

I"come from co"!i"&i"# oper-!io"sbefore i"come !-x

I"come !-xI"come from co"!i"&i"# oper-!io"s

Loss from 8isco"!i"&e8oper-!io"s0 less -pplic-blei"come !-x of /1920333

Ne! i"come

/105330333 230333

103230333

720333/ :720333

/::303331:20333 5?20333

U /5?20333

E-r"i"#s per commo" s.-reI"come from co"!i"&i"# oper-!io"s /3637 /(3693)Loss from 8isco"!i"&e8

oper-!io"s0 "e! of !-x (361) U UUU Ne! i"come /(3611) /(3693)

9312 9315

I"come from co"!i"&i"# oper-!io"s /103230333 /5?20333

Preferre8 8i%i8e"8 (1) (?330333) (?330333)

1230333 (5320333)

ei#.!e8 -%er-#e "&mber of s.-res 903730333 10?0723

I"come from co"!i"&i"# oper-!io"sloss per s.-re / 3637 / (3693)

Loss from 8isco"!i"&e8 oper-!io"s /(720333)

ei#.!e8 -%er-#e "&mber of s.-res 903730333

$isco"!i"&e8 oper-!io"s loss per s.-re / (361)


.

7/25/2019 sm ch (17).doc



(1) Preferre8 8i%i8e"8s > 1230333 + /133 + 63: > /?330333


.

7/25/2019 sm ch (17).doc




(c) 16 A corpor-!io"=s c-pi!-l s!r&c!&re is re#-r8e8 -s simple if i!

co"sis!s o"l' of commo" s.-res or i"cl&8es "o po!e"!i-ll'8il&!i%e sec&ri!ies6 Lore!!- Corpor-!io" .-s - simple c-pi!-ls!r&c!&re bec-&se i! .-s "o! iss&e8 -"' co"%er!iblesec&ri!ies0 <-rr-"!s0 or s!oc; op!io"s0 -"8 !.ere -re "oexis!i"# ri#.!s or sec&ri!ies !.-! .-%e - po!e"!i-ll' 8il&!i%eeffec! o" i!s e-r"i"#s per commo" s.-re6

96 A corpor-!io" .-%i"# - complex c-pi!-l s!r&c!&re <o&l8 bere&ire8 !o m-;e - 8&-l prese"!-!io" of e-r"i"#s per s.-rei6e60 bo!. b-sic e-r"i"#s per s.-re -"8 8il&!e8 e-r"i"#s per s.-re6 T.is -ss&mes !.-! !.e po!e"!i-ll' 8il&!i%e sec&ri!ies-re -c!&-ll' 8il&!i%e6

T.e b-sic e-r"i"#s per s.-re c-lc&l-!io" &ses o"l'!.e <ei#.!e8 -%er-#e of !.e commo" s.-res o&!s!-"8i"#6T.e 8il&!e8 e-r"i"#s per s.-re c-lc&l-!io" -ss&mes !.eco"%ersio" or exercise of -ll po!e"!i-ll' 8il&!i%e sec&ri!ies6


.

7/25/2019 sm ch (17).doc



PROBLEM 17,

(-)

$-!esO&!s!-"8i"# S.-resO&!s!-"8i"# Fr-c!io"of @e-r ei#.!e8S.-res

141:43741

1941

103330333101330333

:419:419

2330333 2230333103230333

B-sic EPS > 103230333

/109?0:7 > /1695

Procee8s from -ss&me8 exercise of 130333

c-ll op!io"s (130333 + /3) /330333

S.-res iss&e8 &po" exercise 130333Tre-s&r' s.-res p&rc.-s-ble (/330333 /2) 0271I"creme"!-l s.-res 1059?I"creme"!-l s.-res pro,r-!e8 !o :419 715

$il&!e8 EPS > 715103230333

/109?0:7

> /1695

The put options are not in the money since the company would beable to buy the shares at $25, which is lower than the market price of$35. The put options are not included in the calculation of dilutedearnings per share.

The purchased call options are antidilutive since they will only beexercised when they are in the money and this will always bef-%o&r-ble !o !.e comp-"'6 T.e' -re !.erefore "o! i"cl&8e8 i" !.e

c-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-re6


.

7/25/2019 sm ch (17).doc



PROBLEM 17, (Co"!i"&e8)

5or (ur(oses of the calculating the indi!idual earnings (er share for the

con!ertible bonds, to decide if there may be further dilution, the bonds areassumed to ha!e been con!erted ?anuary ", $1"%& The income effect4ould be to add back the after ta2 cost of the interest sa!ed of @$+1,111and the denominator effect is to increase the number of shares by +1,1119"11,111 shares -B"$:& This yields an E)* of @+&11 9@$+1,111 B +1,111:4hich is antidiluti!e and therefore e2cluded&

9b: Earnings (er common share7 8asic earnings (er share @"&$% 3iluted earnings (er share @"&$%



.

7/25/2019 sm ch (17).doc



PROBLEM 17,5

(-)


Ne! I"come /109?0:7

$i%i8e"8s o" Preferre8

(9330333 + /) (/:330333)

B-sic EPS /:?0:7 103230333 /36:7

(b)$il&!e8 E-r"i"#s Per S.-re c-lc&l-!io"s

For preferre8 s.-res$i%i8e"8s -%oi8e8 from co"%ersio" / + 9330333 s.-res >

/:330333 8i%i8e8 b' 1330333 -88i!io"-l commo" s.-res pro,r-!e8 !o ?mo"!.s > 720333 -88i!io"-l s.-res > /633 /36:7

A"!i8il&!i%e -"8 !.erefore excl&8e8 from !.e 8il&!e8 e-r"i"#s pers.-re c-lc&l-!io"6

For 2 co"%er!ible bo"8sM-!&ri!' %-l&e (130333 + /10333) /1303330333S!-!e8 r-!e + 2I"!eres! expe"se 2330333

1 !-x r-!e (3) + 673Af!er,!-x i"!eres! / 230333


130333 + ? !.e mos! -8%-"!-#eo&s r-!e !o !.e .ol8er

?30333I"8i%i8&-l EPS c-lc&l-!io" /230333 4 ?30333 > /6? /36:7A"!i8il&!i%e -"8 !.erefore excl&8e8 from !.e 8il&!e8 e-r"i"#s pers.-re c-lc&l-!io"6


.

7/25/2019 sm ch (17).doc





B-sic (-) -bo%e /:?0:7 103230333 /36:7

C-ll Op!io"s (see P17,) 715

/:?0:7 103230715 /36::

Earnings (er common share78asic earnings (er share @1&-.3iluted earnings (er share @1&--



.

7/25/2019 sm ch (17).doc



PROBLEM 17,2

(-)ei#.!e8 -%er-#e "&mber of s.-res

Be#i""i"# b-l-"ce -"6 10 30333 + 7419 > 1?90233B-l-"ce from &l' 10 !o $ec6 1 720333 + 2419 > 12:0923To!-l "&mber of commo" s.-res !o c-lc&l-!e

b-sic e-r"i"#s per s.-re 50723

(b)

B-sic E-r"i"#s Per S.-re I"come S.-res EPSI"come from co"!i"&i"# oper-!io"s /?230333

$i%i8e"8s o" preferre8 s.-res

(130333 + /5633) (530333)

B-sic EPS /?130333 50723 /96:1

I"8i%i8&-l e-r"i"#s per s.-re c-lc&l-!io"s -re 8o"e for e-c.po!e"!i-ll' 8il&!i%e sec&ri!' !o 8e!ermi"e if sec&ri!ies -re i" f-c!

8il&!i%e0 <.e" comp-re8 !o b-sic e-r"i"#s per s.-re of /96:16O"l' 8il&!i%e sec&ri!ies <ill be &se8 i" !.e c-lc&l-!io" of 8il&!e8e-r"i"#s per s.-re6 E-c. <ill be &se8 i" se&e"ce0 from mos!8il&!i%e !o le-s! 8il&!i%e i" or8er !o -rri%e -! !.e mos! 8il&!e8e-r"i"#s per s.-re res&l!6 I" !.e r-";i"# of sec&ri!ies0 s!oc;op!io"s <ill be &se8 firs! if !.e' -re i" !.e mo"e' (exercise priceof /53 is belo< !.e -%er-#e m-r;e! price /23)6 T.e <-rr-"!s -re"o! i" !.e mo"e' -s !.eir exercise price of /29 is -bo%e !.e-%er-#e m-r;e! price of /23 -"8 !.e' -re !.erefore i#"ore8 for

p&rposes of c-lc&l-!i"# 8il&!e8 e-r"i"#s per s.-re6


.

7/25/2019 sm ch (17).doc




For Op!io"s*se !re-s&r' s!oc; me!.o8 !o 8e!ermi"e i"creme"!-l

s.-res o&!s!-"8i"#

Procee8s from exercise of op!io"s(930333 + /53) /330333

S.-res iss&e8 &po" exercise of op!io"s 930333

S.-res p&rc.-s-ble <i!. procee8s(Procee8s A%er-#e m-r;e! price)

(/330333 /23)

1:0333I"creme"!-l s.-res o&!s!-"8i"# 50333

For 7 co"%er!ible bo"8sM-!&ri!' %-l&e /903330333S!-!e8 r-!e + 7I"!eres! expe"se 1530333

1 !-x r-!e (3) + 073Af!er,!-x i"!eres! / ?0333


90333 + 93

530333I"8i%i8&-l EPS c-lc&l-!io" /?0333 4 530333 > /9652 /96:1


B-sic /?130333 50723 /96:1Op!io"s 50333

/?130333 290723 /962Bo"8s ?0333 530333

$il&!e8 E-r"i"#s Per S.-re /10330333 ?90723 /9627


.

7/25/2019 sm ch (17).doc




B-sic EPS I"come S.-res EPS

I"come before 8isco"!i"&e8 oper-!io"s /?130333 50723 /96:3?$isco"!i"&e8 oper-!io" loss (1230333) 50723 (3653)

Ne! I"come /7:30333 50723 /9617?

$il&!e8 EPS I"come S.-res EPSI"come before 8isco"!i"&e8 oper-!io"s /10330333 ?90723 /962:7$isco"!i"&e8 oper-!io" loss (1230333) ?90723 (369)

Ne! I"come /20333 ?90723 /9612

P-r!i-l I"come S!-!eme"!

I"come from co"!i"&i"# oper-!io"s /?230333Loss from 8isco"!i"&e8 oper-!io"s ("e! of !-x reco%er') 1230333Ne! I"come /330333

B-sic e-r"i"#s per s.-reI"come from co"!i"&i"# oper-!io"s /96:1$isco"!i"&e8 oper-!io"s loss (65)Ne! I"come /961

$il&!e8 e-r"i"#s per s.-reI"come from co"!i"&i"# oper-!io"s /9627$isco"!i"&e8 oper-!io"s loss (6)Ne! I"come /961?



.

7/25/2019 sm ch (17).doc



PROBLEM 17,:

(-) Br'ce Corpor-!io" .-s - simple c-pi!-l s!r&c!&re si"ce i! 8oes "o! .-%e -"' po!e"!i-ll'8il&!i%e sec&ri!ies6

(b) T.e <ei#.!e8 -%er-#e "&mber of s.-res !.-! Br'ce Corpor-!io" <o&l8 &se i"c-lc&l-!i"# e-r"i"#s per s.-re for !.e fisc-l 'e-rs e"8e8 M-' 10 93150 -"8 M-' 1093120 is 10:330333 -"8 909330333 respec!i%el'0 c-lc&l-!e8 -s follo<s

9315E%e"!

$-!esO&!s!-"8i"#

S.-resO&!s!-"8i"#

Res!-!e,me"!

Fr-c!io"of @e-r

ei#.!e8S.-res

Be#i""i"# b-l6Ne< iss&e

&"e 1Oc!6 1Oc!6 1M-' 1

103330333102330333

16931693

5419419

533033310933033310:330333

9312E%e"!

$-!esO&!s!-"8i"#

S.-resO&!s!-"8i"#

Fr-c!io"of @e-r

ei#.!e8S.-res

Be#i""i"# b-l6Ne< iss&e

&"e 1$ec6 1$ec6 1M-' 1

1033033390:330333

:419:419

?33033310330333909330333

102330333 + 169


.

7/25/2019 sm ch (17).doc



Edition

PROBLEM 17,: (Co"!i"&e8)

(c) BR@CE CORPORATION

Comp-r-!i%e I"come S!-!eme"!sFor Fisc-l @e-rs E"8e8 M-' 10 9315 -"8 9312

9315 9312

I"come from oper-!io"sI"!eres! expe"se (1)I"come before !-xI"come !-xI"come from co"!i"&i"# oper-!io"s

$isco"!i"&e8 oper-!io" loss0 "e!of i"come !-x of /130333Ne! i"come

/10330333 9530333 102:30333

5:0333 103?90333

/902330333 9530333909:30333

:7033310290333

5930333/ 103?90333 / 101:90333

E-r"i"#s per s.-reI"come from co"!i"&i"# oper-!io"s /36:2 - /36:? -

$isco"!i"&e8 oper-!io"s loss (361?) b

Ne! i"come /36:2 /3623

(1) I"!eres! expe"se > /905330333 + 613 >/9530333

9315 9312- I"come from co"!i"&i"# oper-!io"s /103?90333 /10290333

Preferre8 8i%i8e"8 (9) (:30333) (:30333)

/10390333 /102990333

ei#.!e8 -%er-#e "&mber of s.-res 10:330333 909330333

E-r"i"#s per s.-re b-sic / 36:2 / 36:?

b $isco"!i"&e8 oper-!io"s loss /(5930333)

ei#.!e8 -%er-#e "&mber of s.-res 909330333

ei#.!e8 -%er-#e "&mber of s.-res / (361?)

(9) Preferre8 8i%6 > (No6 of S.-res + P-r -l&e + $i%i8e"8 )> (930333 + /23 + 63:) > /:30333 per

'e-r


.

7/25/2019 sm ch (17).doc



Edition



.

7/25/2019 sm ch (17).doc



PROBLEM 17,7

(-) T.e "&mber of s.-res &se8 !o c-lc&l-!e b-sic e-r"i"#s per s.-re is 50?2103330 -sc-lc&l-!e8 belo<6

E%e"!$-!es

O&!s!-"8i"#S.-res

O&!s!-"8i"#Res!-!e,

me"!Fr-c!io"of @e-r

ei#.!e8S.-res

Be#i""i"# B-l-"ce0 i"cl&8i"# 2 s!oc; 8i%i8e"8Co"%ersio" of preferre8 s.-resS!oc; spli!Iss&e8 s.-res for b&il8i"#P&rc.-se of s.-res

-"6 1Apr6 1

Apr6 1&l' 1&l' 1A&#6 1

A&#6 1No%6 1No%6 1$ec6 1

901330333

902930333203530333

20530333201:0333

963

963

419

4191419

4199419

103230333

109:30333 5930333

1020333 :0333

To!-l "&mber of commo" s.-res !o c-lc&l-!e b-sic e-r"i"#s per s.-re 50?210333

5330333 s.-res of preferre8 s!oc; + 1632 (f-c!or 8&e !o s!oc; 8i%i8e"8) > 5930333-88i!io"-l commo" s.-res


.

7/25/2019 sm ch (17).doc



Edition


(b) T.e "&mber of s.-res &se8 !o c-lc&l-!e 8il&!e8 e-r"i"#s per

s.-re is 207?103330 -s s.o<" belo<6

N&mber of s.-res !o c-lc&l-!e b-sic e-r"i"#s per s.-re

50?210333

Co"%er!ible preferre8 s.-ress!ill o&!s!-"8i"#(330333 + 9 + 1632) :30333

Co"%er!ible preferre8 s.-resco"%er!e8(5330333 + 9 + 1632 + 419) 9130333

N&mber of s.-res !o c-lc&l-!e 8il&!e8 e-r"i"#sper s.-re 207?10333

(c) T.e -8&s!e8 "e! i"come !o be &se8 -s !.e "&mer-!or i" !.eb-sic e-r"i"#s per s.-re c-lc&l-!io" for !.e 'e-r e"8e8$ecember 10 93150 is /13022303330 -s c-lc&l-!e8 belo<

Ne! i"come /1102230333Preferre8 s.-re 8i%i8e"8s

M-rc. 1 (7330333 + /633 + 419) /2920333&"e 30 Sep!ember 30

-"8 $ecember 1

(330333 + /633 + 419 + ) :720333 109330333

A8&s!e8 "e! i"come /130230333

不

乘以

9613


.

7/25/2019 sm ch (17).doc



Edition

PROBLEM 17,

T.e c-lc&l-!io" of C-m8e" P.-rm-ce&!ic-l I"8&s!ries= b-sic -"88il&!e8 e-r"i"#s per s.-re for !.e fisc-l 'e-r e"8e8 &"e 3093150 -re s.o<" belo<6

(-)


Ne! I"come /102330333


(920333 + /5692) (/13:0923)

B-sic EPS /10?0723 103330333 /16?

I"8i%i8&-l e-r"i"#s per s.-re c-lc&l-!io"s -re 8o"e for e-c.po!e"!i-ll' 8il&!i%e sec&ri!' !o 8e!ermi"e if !.e sec&ri!ies -rei" f-c! 8il&!i%e0 <.e" comp-re8 !o b-sic e-r"i"#s per s.-reof /16?6 O"l' 8il&!i%e sec&ri!ies <ill be &se8 i" !.ec-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-re6 E-c. <ill be &se8i" se&e"ce0 from mos! 8il&!i%e !o le-s! 8il&!i%e i" or8er !o-rri%e -! !.e mos! 8il&!e8 e-r"i"#s per s.-re res&l!6 I" !.er-";i"# of sec&ri!ies0 op!io"s <ill be &se8 firs! if !.e' -re i"!.e mo"e' (exercise price of /12 is belo< !.e -%er-#em-r;e! price /93)6

For Op!io"s*se !re-s&r' s!oc; me!.o8 !o 8e!ermi"e i"creme"!-l

s.-res o&!s!-"8i"#

Procee8s from exercise of op!io"s(1330333 + /12) /102330333



(/102330333 /93)

720333I"creme"!-l s.-res o&!s!-"8i"# 920333


.

7/25/2019 sm ch (17).doc



Edition



M-!&ri!' %-l&e /203330333S!-!e8 r-!e + 7I"!eres! expe"se 230333

1 !-x r-!e (3) + 673Af!er,!-x i"!eres! / 9520333

/203330333 4 /10333 > 20333 bo"8sI"cre-se i" 8il&!e8 e-r"i"#s per s.-re 8e"omi"-!or

20333 + 23

9230333

I"8i%i8&-l EPS c-lc&l-!io" /9520333 4 9230333 > /6? /16?


B-sic /10?0723 103330333 /16?Op!io"s 920333

10?0723 103920333 16:Bo"8s 9520333 9230333

$il&!e8 E-r"i"#s Per S.-re /10:0723 109720333 /169?


.

7/25/2019 sm ch (17).doc



Edition


(b) .e" c-lc&l-!i"# !.e i"!eres! -ss&me8 !o .-%e bee" s-%e8

b' !.e co"%ersio" of bo"8s0 !.e -mor!i-!io" of -"'premi&m or 8isco&"! <ill be !-;e" i"!o -cco&"! i" !.ec-lc&l-!io"6 Premi&m -mor!i-!io" <ill re8&ce i"!eres!expe"se <.ile 8isco&"! -mor!i-!io" <ill i"cre-se i"!eres!expe"se rel-!i%e !o !.e c-s. -mo&"! of i"!eres! p-i86Follo<i"# !.e -8&s!me"! for -"' premi&m or 8isco&"!-mor!i-!io" !o !.e -ss&me8 i"!eres! s-%i"#s0 i"come !-xm&s! -lso be -pplie80 before !.e "e! s-%i"#s -re -88e8 !o!.e "e! i"come "&mer-!or i" !.e 8il&!e8 e-r"i"#s per s.-rer-!io c-lc&l-!io"6 No!e !.-! <.e" effec!i%e i"!eres!

-mor!i-!io" of premi&m or 8isco&"! is emplo'e80 !.ei"!eres! -88e8 b-c; is !.e -c!&-l effec!i%e i"!eres! -mo&"!0"e! of !-x0 r-!.er !.-" !.e c-s. i"!eres! p-i86


(c) Preferre8 8i%i8e"8s <ere "o! 8ecl-re8 i" 9315 .o<e%er o"e 'e-r of 8i%i8e"8s o" !.e preferre8 s.-res <-s

8e8&c!e8 from "e! i"come !o -rri%e -! "e! i"come -%-il-ble!o commo" s.-re.ol8ers6 T.is is bec-&se !.e preferre8s.-res -re c&m&l-!i%e0 me-"i"# !.-! !.e -""&-l 8i%i8e"8"o! p-i8 i" -"' #i%e" 'e-r m&s! be m-8e &p i" - l-!er 'e-r before -"' profi!s c-" be 8is!rib&!e8 !o commo"s.-re.ol8ers6 If !.e comp-"' .-s c&m&l-!i%e preferre8s.-res o&!s!-"8i"#0 !.e -""&-l 8i%i8e"8 is 8e8&c!e8 from"e! i"come !o -rri%e -! "e! i"come -%-il-ble !o commo"s.-re.ol8ers0 e%e" if !.e -""&-l 8i%i8e"8 is "o! 8ecl-re80bec-&se commo" s.-re.ol8ers "ee8 !o ;"o< .o< m&c. of

!.e comp-"'=s -%-il-ble i"come c-" be -!!rib&!e8 !o !.es.-res !.-! !.e' o<"6 Commo" s.-re.ol8ers refer !oe-r"i"#s per s.-re i"form-!io" !o .elp !.em -ssess f&!&re8i%i8e"8 p-'o&!s -"8 !.e %-l&e of e-c. commo" s.-re6T.erefore !.e effec! of c&m&l-!i%e 8i%i8e"8s o" preferre8s.-res is i"cl&8e8 i" b-sic -"8 8il&!e8 e-r"i"#s per s.-re6


.

7/25/2019 sm ch (17).doc



Edition

PROBLEM 17,?

T.e c-lc&l-!io" of E-rl Limi!e8=s b-sic -"8 8il&!e8 e-r"i"#s per s.-re for !.e 9315 fisc-l 'e-r -re s.o<" belo<6

(-)


Ne! I"come /107230333


(930333 + /63) (/9950333)

B-sic EPS /1029:0333 10330333 /362

(b) I"8i%i8&-l e-r"i"#s per s.-re c-lc&l-!io"s -re 8o"e for e-c. po!e"!i-ll' 8il&!i%e sec&ri!' !o 8e!ermi"e if !.esec&ri!ies -re i" f-c! 8il&!i%e0 <.e" comp-re8 !o b-sice-r"i"#s per s.-re of /3626 O"l' 8il&!i%e sec&ri!ies <ill be&se8 i" !.e c-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-re6 E-c.<ill be &se8 i" se&e"ce0 from mos! 8il&!i%e !o le-s!8il&!i%e0 i" or8er !o -rri%e -! !.e mos! 8il&!e8 e-r"i"#s per s.-re res&l!6 I" !.e r-";i"# of sec&ri!ies0 op!io"s <ill be

&se8 firs! if !.e' -re i" !.e mo"e' (exercise price of /19 isbelo< !.e -%er-#e m-r;e! price /1)6

For Op!io"s *se !re-s&r' s!oc; me!.o8 !o 8e!ermi"e i"creme"!-l

s.-res o&!s!-"8i"#

Procee8s from exercise of op!io"s(230333 + /19)

/:330333



(/:330333 /1) 0I"creme"!-l s.-res o&!s!-"8i"# 1:0::7


.

7/25/2019 sm ch (17).doc



Edition

PROBLEM 17,? (Co"!i"&e8)



1 !-x r-!e (1) + 6:?Af!er,!-x i"!eres! / 9033


0333 + 3

9530333I"8i%i8&-l EPS c-lc&l-!io" /9033 4 9530333 > /362 /36 R-";e8 mos! 8il&!i%e -f!er op!io"s

For : co"%er!ible bo"8sM-!&ri!' %-l&e /503330333S!-!e8 r-!e + :I"!eres! expe"se -""&-l 9530333

Pro,r-!e8 !o six mo"!.s + 62

I"!eres! expe"se 19303331 !-x r-!e (1) + 6:?Af!er,!-x i"!eres! / 9033

/5033303334/10333 > 50333 bo"8s + :419 > 90333I"cre-se i" 8il&!e8 e-r"i"#s per s.-re 8e"omi"-!or

90333 + 3

1:30333I"8i%i8&-l EPS c-lc&l-!io" /9033 4 1:30333 > /3629 /36

R-";e8 seco"8 mos! 8il&!i%e -f!er 5 bo"8s -bo%e6

For preferre8 s.-res$i%i8e"8s -%oi8e8 from co"%ersio" /363 + 930333 s.-res

> /9950333 8i%i8e8 b' 930333 -88i!io"-l commo" s.-res(o"e !o o"e r-!io) > /363 /362 R-";e8 le-s!8il&!i%e6


.

7/25/2019 sm ch (17).doc



Edition



B-sic (-) -bo%e /1029:0333 10330333 /362Op!io"s 1:0::7

1029:0333 101:0::7 365

5 Bo"8s 9033 9530333

10:3033 9032:0::7 367

: Bo"8s 9033 1:30333

$il&!e8 E-r"i"#s Per S.-re 10:?10:33 9091:0::7 367:

Preferre8 s.-res 9950333 930333

/10?120:33 905?:0::7 /3677

T.e preferre8 s.-res0 -l!.o&#. i"i!i-ll' -ppe-ri"# 8il&!i%e0&l!im-!el' <o&l8 c-&se 8il&!e8 e-r"i"#s per s.-re !o become#re-!er6 T.e preferre8 s.-res -re !.erefore excl&8e8 from !.e8il&!e8 e-r"i"#s per s.-re c-lc&l-!io"6 $il&!e8 e-r"i"#s per s.-re rem-i" /367:6



.

7/25/2019 sm ch (17).doc



Edition


(c) Preferre8 8i%i8e"8s <ere "o! 8ecl-re8 i" 9315 .o<e%er o"e

'e-r of 8i%i8e"8s o" !.e co"%er!ible preferre8 s.-res <-s8e8&c!e8 from "e! i"come !o -rri%e -! "e! i"come -%-il-ble!o commo" s.-re.ol8ers i" c-lc&l-!i"# b-sic e-r"i"#s per s.-re6 T.is is bec-&se !.e co"%er!ible preferre8 s.-res -rec&m&l-!i%e0 me-"i"# !.-! !.e -""&-l 8i%i8e"8 "o! p-i8 i"-"' #i%e" 'e-r m&s! be m-8e &p i" - l-!er 'e-r before -"'profi!s c-" be 8is!rib&!e8 !o commo" s.-re.ol8ers6 I"c-lc&l-!i"# 8il&!e8 e-r"i"#s per s.-re0 !.e effec! of co"%er!i"# !.e co"%er!ible preferre8 s.-res i"!o commo"s.-res <-s co"si8ere8 (i"cl&8i"# elimi"-!io" of !.e -""&-l

preferre8 s.-re 8i%i8e"8)0 -"8 i! <-s 8e!ermi"e8 !.-!co"%ersio" of !.e preferre8 s.-res <o&l8 "o! re8&ce 8il&!e8e-r"i"#s per s.-re6 T.erefore !.e effec! of co"%er!i"# !.epreferre8 s.-res <-s excl&8e8 from !.e c-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-re0 -"8 !.e -""&-l preferre8 s.-re8i%i8e"8 <-s 8e8&c!e8 from "e! i"come !o -rri%e -! "e!i"come -%-il-ble !o commo" s.-re.ol8ers6 Commo"s.-re.ol8ers "ee8 !o ;"o< .o< m&c. of !.e comp-"'=s-%-il-ble i"come c-" be -!!rib&!e8 !o !.e s.-res !.-! !.e'

o<"0 -"8 !.e' refer !o e-r"i"#s per s.-re i"form-!io" !o.elp !.em -ssess f&!&re 8i%i8e"8 p-'o&!s -"8 !.e %-l&e of e-c. commo" s.-re6 T.erefore !.e effec! of c&m&l-!i%e8i%i8e"8s o" co"%er!ible preferre8 s.-res m&s! be c-ref&ll'co"si8ere8 i" c-lc&l-!i"# b-sic -"8 8il&!e8 e-r"i"#s per s.-re6

(8) If 8il&!e8 EPS <-s "o! repor!e80 - po!e"!i-l s.-re.ol8er <o&l8 o"l' be prese"!e8 <i!. b-sic EPS0 <.ic. <o&l8 "o!reflec! !.e si#"ific-"! -8%erse effec! of co"%ersio" or

exercise of -ll po!e"!i-ll' 8il&!i%e sec&ri!ies6 EPS is -lso&se8 i" c-lc&l-!io" of Price E-r"i"#s r-!io (m-r;e! price per s.-re 4 EPS)0 -"8 8il&!e8 EPS s.o&l8 be prese"!e8 o" !.ecomp-"'=s fi"-"ci-l s!-!eme"!s !o pro%i8e - c-lc&l-!io" of EPS for comp-riso" !o m-r;e! price per s.-re6


.

7/25/2019 sm ch (17).doc



Edition

PROBLEM 17,13

T.e c-lc&l-!io" of Be"oi! Limi!e8=s b-sic -"8 8il&!e8 e-r"i"#sper s.-re for !.e 9315 fisc-l 'e-r -re s.o<" belo<6

(-)


Ne! I"come /1:05330333


(330333 + /) (:05330333)

B-sic EPS /1303330333 903330333 /2633

(b) I"8i%i8&-l e-r"i"#s per s.-re c-lc&l-!io"s -re 8o"e for e-c. po!e"!i-ll' 8il&!i%e sec&ri!' !o 8e!ermi"e if !.esec&ri!ies -re i" f-c! 8il&!i%e0 <.e" comp-re8 !o b-sice-r"i"#s per s.-re of /26336 O"l' 8il&!i%e sec&ri!ies <ill be&se8 i" !.e c-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-re6 E-c.<ill be &se8 i" se&e"ce0 from mos! 8il&!i%e !o le-s!8il&!i%e0 i" or8er !o -rri%e -! !.e mos! 8il&!e8 e-r"i"#s per s.-re res&l!6 I" !.e r-";i"# of sec&ri!ies0 op!io"s <ill be&se8 firs! if !.e' -re i" !.e mo"e' (exercise price of /:3 isbelo< !.e -%er-#e m-r;e! price /72)6


s.-res o&!s!-"8i"#

Procee8s from exercise of op!io"s(1330333 + /:3)

/:03330333



(/:03330333 /72) 30333I"creme"!-l s.-res o&!s!-"8i"# 930333


.

7/25/2019 sm ch (17).doc



Edition


For 2 co"%er!ible 8ebe"!&res


1 !-x r-!e (3) + 673Af!er,!-x i"!eres! /02330333

/133033303334/10333 > 1330333 8ebe"!&resI"cre-se i" 8il&!e8 e-r"i"#s per s.-re 8e"omi"-!or

1330333 + 93

903330333I"8i%i8&-l EPS c-lc6 /02330333 4 903330333 > /1672 /2633 R-";e8 mos! 8il&!i%e -f!er op!io"s

For preferre8 s.-res$i%i8e"8s -%oi8e8 from co"%ersio" /633 + 330333 s.-res

> /:05330333 8i%i8e8 b' 10:330333 -88i!io"-l commo" s.-res(o"e !o !<o r-!io) > /5633 /2633

R-";e8 le-s! 8il&!i%e


.

7/25/2019 sm ch (17).doc



Edition



B-sic (-) -bo%e /1303330333 903330333 /2633

Op!io"s 9303331303330333 903930333 56?2

2 8ebe"!&res 02330333 903330333

$il&!e8 E-r"i"#s Per S.-re 102330333 503930333 /6:

Preferre8 s.-res :05330333 10:330333

/1?0?330333 20:930333 /625

T.e preferre8 s.-res0 -l!.o&#. i"i!i-ll' -ppe-ri"# 8il&!i%e0&l!im-!el' c-&se 8il&!e8 e-r"i"#s per s.-re !o become #re-!er6T.e preferre8 s.-res -re !.erefore excl&8e8 from !.e 8il&!e8e-r"i"#s per s.-re c-lc&l-!io"6 $il&!e8 e-r"i"#s per s.-rerem-i" /6:6



.

7/25/2019 sm ch (17).doc



Edition

PROBLEM 17,11

(-) T.e co"!roller=s c-lc&l-!io"s -re "o! correc! i" !.-! !.es!r-i#.! -ri!.me!ic -%er-#e of !.e commo" s.-reso&!s!-"8i"# -! !.e be#i""i"# -"8 e"8 of !.e 'e-r is &se86

T.e <ei#.!e8 -%er-#e "&mber of s.-res o&!s!-"8i"# s.o&l8be c-lc&l-!e8 -s follo<s

$-!esO&!s!-"8i"#

S.-resO&!s!-"8i"#

Fr-c!io"of @e-r

ei#.!e8S.-res

-"6 1Oc!6 1Oc!6 1$ec6 1$ec6 1$ec6 1

1092033310320333109330333

?41994191419

?:0723 1790233 1330333


Ne! i"come for 'e-r /0750?:3

E-r"i"#s per s.-re > 109:0923

/0750?:3 > /967


.

7/25/2019 sm ch (17).doc



Edition


(b) B-sic e-r"i"#s per s.-re > 109:0923

/0750?:3 > /967

$il&!e8 e-r"i"#s per s.-re > 103:0923

/0750?:3 > /962

C-lc&l-!io" of <ei#.!e8 -%er-#e "&mber of s.-res -8&s!e8 for8il& !i%e sec&ri!ies

A%er-#e "&mber of s.-res &"8er op!io"s o&!s!-"8i"# 1530333

Op!io" price per s.-re + /13

Procee8s &po" exercise of op!io"s /105330333

S.-res iss&e8 &po" exercise of op!io"s 1530333M-r;e! price of commo" s.-res A%er-#e /93Tre-s&r' s.-res !.-! co&l8 be rep&rc.-se8 <i!. procee8s (/105330333 /93) 730333Excess of s.-res &"8er op!io" o%er !re-s&r' s.-res

!.-! co&l8 be rep&rc.-se8 (1530333 730333) 730333

I"creme"!-l s.-res 730333

A%er-#e "&mber of commo" s.-res o&!s!-"8i"#

109:0923ei#.!e8 -%er-#e "&mber of s.-res -8&s!e8 for

8il&!i%e sec&ri!ies

103:0923



.

7/25/2019 sm ch (17).doc



Edition

PROBLEM 17,19

T.e c-lc&l-!io" of Polo Limi!e8=s b-sic -"8 8il&!e8 e-r"i"#s per s.-re for !.e 9315 fisc-l 'e-r -re s.o<" belo<6

(-)


Ne! I"come /90330333


(503330333 + :) (9530333)

B-sic EPS / 903:30333 :330333 /65

(b) I"8i%i8&-l e-r"i"#s per s.-re c-lc&l-!io"s -re 8o"e for e-c. po!e"!i-ll' 8il&!i%e sec&ri!' !o 8e!ermi"e if !.esec&ri!ies -re i" f-c! 8il&!i%e0 <.e" comp-re8 !o b-sice-r"i"#s per s.-re of /656 O"l' 8il&!i%e sec&ri!ies <ill be&se8 i" !.e c-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-re6 E-c.<ill be &se8 i" se&e"ce0 from mos! 8il&!i%e !o le-s!8il&!i%e0 i" or8er !o -rri%e -! !.e mos! 8il&!e8 e-r"i"#s per s.-re res&l!6 I" !.e r-";i"# of sec&ri!ies0 op!io"s <ill be&se8 firs! if !.e' -re i" !.e mo"e' (exercise price of /93 isbelo< !.e -%er-#e m-r;e! price /92)6


s.-res o&!s!-"8i"#

Procee8s from exercise of op!io"s(720333 + /93)

/102330333



(/102330333 /92) :30333I"creme"!-l s.-res o&!s!-"8i"# (-88i!io"-l po!e"!i-l commo" s.-res) 120333


.

7/25/2019 sm ch (17).doc



Edition

PROBLEM 17,19(Co"!i"&e8)

For co"%er!ible bo"8s

M-!&ri!' %-l&e /903330333S!-!e8 r-!e + I"!eres! expe"se 1:30333

1 !-x r-!e (3) + 673Af!er,!-x i"!eres! / 1190333

/903330333 4 /10333 > 90333 bo"8sI"cre-se i" 8il&!e8 e-r"i"#s per s.-re 8e"omi"-!or

90333 + 3

:30333I"8i%i8&-l EPS c-lc&l-!io" /1190333 4 :30333 > /167 /65 R-";e8 mos! 8il&!i%e -f!er op!io"s6

For : co"%er!ible preferre8 s.-res$i%i8e"8s -%oi8e8 from co"%ersio" : + /503330333 >

/9530333 8i%i8e8 b' (/503330333 4 /133 p-r) or 530333preferre8 s.-res + (o"e !o !.ree r-!io) > 1930333 -88i!io"-lcommo" s.-res > /9633 /65

R-";e8 le-s! 8il&!i%e


B-sic (p-r! -) /903:30333 :330333 /65

Op!io"s 120333

903:30333 :120333 62

Bo"8s 1190333 :30333

901790333 :720333 699

Preferre8 S.-res 9530333 1930333

/905190333 7?20333 /63



.

7/25/2019 sm ch (17).doc



Edition

PROBLEM 17,19(Co"!i"&e8)

(c) If 8il&!e8 EPS <-s "o! repor!e80 - po!e"!i-l s.-re.ol8er

<o&l8 o"l' be prese"!e8 <i!. b-sic EPS0 <.ic. <o&l8 "o!reflec! !.e si#"ific-"! -8%erse effec! of co"%ersio" or exercise of -ll po!e"!i-ll' 8il&!i%e sec&ri!ies6 EPS is -lso&se8 i" c-lc&l-!io" of Price E-r"i"#s r-!io (m-r;e! price per s.-re 4 EPS)0 -"8 8il&!e8 EPS s.o&l8 be prese"!e8 o" !.ecomp-"'=s fi"-"ci-l s!-!eme"!s !o pro%i8e - c-lc&l-!io" of EPS for comp-riso" !o m-r;e! price per s.-re6


.

7/25/2019 sm ch (17).doc



Edition

PROBLEM 17,1

(-) I"!eres! expe"se i"c&rre8 i" 9315 /10170933Less i"!eres! o" 13 bo"8s iss&e8 -! p-r

(/203330333 + 13) 2330333Rem-i"i"# i"!eres! expe"se o" 7692 bo"8s /:70933

(b)


Ne! I"come /02330333

$i%i8e"8s o" /5623 Preferre8

(1930333 + /5623) (2530333)$i%i8e"8s o" /633 Preferre8

(5330333 + /633) (109330333)

B-sic EPS /:07:30333 107330333 /6?

(c) I"8i%i8&-l e-r"i"#s per s.-re c-lc&l-!io"s -re 8o"e for e-c. po!e"!i-ll' 8il&!i%e sec&ri!' !o 8e!ermi"e if !.esec&ri!ies -re i" f-c! 8il&!i%e0 <.e" comp-re8 !o b-sice-r"i"#s per s.-re of /6?6 O"l' 8il&!i%e sec&ri!ies <ill be

&se8 i" !.e c-lc&l-!io" of 8il&!e8 e-r"i"#s per s.-re6 E-c.<ill be &se8 i" se&e"ce0 from mos! 8il&!i%e !o le-s!8il&!i%e0 i" or8er !o -rri%e -! !.e mos! 8il&!e8 e-r"i"#s per s.-re res&l!6

For /5623 co"%er!ible preferre8 s.-res$i%i8e"8s -%oi8e8 from co"%ersio" of /5623 preferre8

s.-res is /2530333 8i%i8e8 b' (1930333 + 9) or 9530333-88i!io"-l commo" s.-res > /9692 /6?6 R-";e8 mos! 8il&!i%e6

S.-res co%er! !o C4S但是

!o!-l 8i%i8e"8s还是按照原先的

P4SFor /633 co"%er!ible preferre8 s.-res

$i%i8e"8s -%oi8e8 from co"%ersio" of /633 preferre8s.-res is /109330333 8i%i8e8 b' 5330333 -88i!io"-l commo"s.-res > /633 /6?6 R-";e8 !.ir8 mos! 8il&!i%e -f!er !.e /5623 co"%er!iblepreferre8 s.-res -"8 !.e co"%er!ible bo"8s6


.

7/25/2019 sm ch (17).doc



Edition



I"!eres! expe"se refer !o p-r! (-) /:709331 !-x r-!e (3) + 673Af!er,!-x i"!eres! / 5750753

/?033303334/133 > ?30333 bo"8sI"cre-se i" 8il&!e8 e-r"i"#s per s.-re 8e"omi"-!or

?30333 + 9130333

I"8i%i8&-l EPS c-lc&l-!io" /5750753 4 130333 > /96:5 /6? R-";e8 seco"8 mos! 8il&!i%e -f!er !.e /5623 co"%er!iblepreferre8 s.-res

(8)


B-sic (p-r! b) /:07:30333 107330333 /6?

/5623 Preferre8 S.-res 2530333 9530333

70330333 10?530333 67:

7692 Bo"8s 5750753 130333

707750753 901930333 6:7

/633 Preferre8 S.-res 109330333 5330333

/0?750753 902930333 /62:


.

7/25/2019 sm ch (17).doc



Edition


(e)The splitting of the annual dividend entitlement of both classesof preferred shares into quarters may be preferred by theshareholders. More frequent dividends enhance their cashinflows on investments. In the case of Jackie Enterprises Ltd.,neither issuances nor conversions of preferred shares tookplace during 2014. Consequently, there is no impact on thecalculation of diluted earnings per share for the year. Had anyconversions taken place, the dividend entitlement would havebeen reduced proportionately, with a corresponding increase inthe number of common shares outstanding from the date of

conversion. However, since conversion is assumed to haveoccurred at the beginning of the year, the diluted EPS amountwould not change regardless of when the conversion actuallytook place.


.

7/25/2019 sm ch (17).doc



PROBLEM 17,15

(-)

E%e"!$-!es

O&!s!-"8i"#S.-res

O&!s!-"8i"#Res!-!e,

me"!Fr-c!io"of @e-r

ei#.!e8S.-res

Be#i""i"# b-l-"ce

Iss&e8 s.-resS!oc; 8i%i8e"8Ac&ire8 s.-res

-"6 1M-rc. 1

M-rc. 1&"e 1&"e 1No%6 1No%6 1$ec6 1

?30333

1930333 190333 1390333

161

161

9419

41924199419

1:0233

0333 220333

170333


(b)


Ne! I"come /1230333

$i%i8e"8s o" 5 Preferre8

(/1330333 + 5) (50333)

B-sic EPS /15:0333 1910233 /1693


.

7/25/2019 sm ch (17).doc




(c) I"8i%i8&-l e-r"i"#s per s.-re c-lc&l-!io"s -re 8o"e for e-c.po!e"!i-ll' 8il&!i%e sec&ri!' !o 8e!ermi"e if !.e sec&ri!ies -re i"f-c! 8il&!i%e0 <.e" comp-re8 !o b-sic e-r"i"#s per s.-re of /16936O"l' 8il&!i%e sec&ri!ies <ill be &se8 i" !.e c-lc&l-!io" of 8il&!e8e-r"i"#s per s.-re6 E-c. <ill be &se8 i" se&e"ce0 from mos!8il&!i%e !o le-s! 8il&!i%e0 i" or8er !o -rri%e -! !.e mos! 8il&!e8e-r"i"#s per s.-re res&l!6

For !.e s!oc; op!io"sT.e s!oc; op!io"s -re "o! i" !.e mo"e' -"8 !.erefore -re-"!i8il&!i%e6 T.e exercise price of !.e op!io"s excee8s !.e-%er-#e m-r;e! price of !.e commo" s.-res for !.e 9315 fisc-l

'e-r6 T.e op!io"s -re excl&8e8 for p&rposes of c-lc&l-!i"# 8il&!e8e-r"i"#s per s.-re6

For 5 c&m&l-!i%e co"%er!ible preferre8 s.-res$i%i8e"8s -%oi8e8 from co"%ersio" of 5 preferre8 s.-res is/50333 8i%i8e8 b' 120333 -88i!io"-l commo" s.-res > /3697 /1693 R-";e8 mos! 8il&!i%e

For : co"%er!ible bo"8sI"!eres! expe"se /:0333

1 !-x r-!e (3) + 073Af!er,!-x i"!eres! /50933

I"!eres! expe"se -%oi8e8 from !.e co"%ersio" of !.e : bo"8s is/50933 8i%i8e8 b' 130333 -88i!io"-l commo" s.-res > /3659 /1693 R-";e8 less 8il&!i%e !.-" !.e 5 co"%er!ible preferre8 s.-res6


.

7/25/2019 sm ch (17).doc




(8)$il&!e8 E-r"i"#s Per S.-re I"come S.-res EPS

B-sic (p-r! b) /15:0333 1910233 /16935 Preferre8 S.-res 50333 120333

1230333 1:0233 1613

: Bo"8s 50933 130333

/1250933 15:0233 /1632



.

7/25/2019 sm ch (17).doc



CASES

No!e See !.e C-se Primer o" !.e S!&8e"! <ebsi!e0 -s <ell -s !.e

S&mm-r' of !.e C-se Primer i" !.e fro"! of !.e !ex!6 No!e !.-! !.e firs!fe< c.-p!ers i" %ol&me 1 l-' !.e fo&"8-!io" for fi"-"ci-l repor!i"#8ecisio" m-;i"#6

CA 17,1 CANTON PRO$*CTS (CPI)

!er!ie4

- *hares trade on e2change therefore I5'* is a constraint&

- The com(any is 4orried about cash flo4s and interest rate being (aid& The latter is influenced by the diluti!e im(act of (otential common shares 94hich are dri!ingshare (rices do4n and therefore decreasing its ability to borro4 money at lo4estrates:&

- In!estorsBshareholders are 4orried about diluti!e im(act of (otential commonshares&

- 8anks 4ill be interested in share (rice 94hich is negati!ely affected by the(otential common shares:&

- 'ole D as auditor D you 4ill 4ant most trans(arent and conser!ati!e re(ortinges(ecially gi!en shareholder and in!estor focus on diluti!e im(act of (otentialcommon shares&

Analysis and recommendations

Issue7 o4 to account for ne4 (otential common shares& Com(any has e2changed oldcon!ertible senior subordinated notes for ne4 ones&

Calculate 3E)* under the if6con!ertedmethod

Calculate 3E)* under the =treasurystock> method

- Fe4 notes in substance are similar to the old notes and should becalculated under the =if6con!erted>method&

- This 4ill be diluti!e since share(rice is abo!e con!ersion (rice in the money&

- Care should be taken to ensurethat this e2change 4as not donesolely to mani(ulate 3E)*&

- Fe4 shares essentially containan embedded o(tion&

- *ince share (rice does note2ceed $1 of the con!ersion

(rice not diluti!e sinceconditions for dilution not met&

Conclusion7 More conser!ati!e to include in 3E)* calculation&


.

7/25/2019 sm ch (17).doc



IC 17,1 TIVIANA=S FOO$S LIMITE$

!er!ie4

6 Currently a (ublic com(any therefore I5'* constraint&6 Wants to go (ri!ate consortium 4ill be maor user& They ha!e agreed to buy

the com(any if share (rices are at a certain le!el& Fot sure if this is likely or (robable at this (oint& Will 4ant trans(arent statements& If (ri!ate, 4ill ha!e achoice to follo4 I5'* or A*)E&

6 Therefore bias by com(any to ensure only (ositi!e financial statements to ensurethat share (rice is not negati!ely affected&

6 The controller may 4ant to ensure that statements (resent com(any in its bestlight&

Analysis and recommendations

Issue7 o4 to account for initial u(front franchise fees

'ecogni<e re!enues 4hen locationsfound and de(osits taken

'ecogni<e later

6 At this (oint maor e!entsha!e occurred and com(any hasearned its re!enue&

6 Critical e!ent is finding locations&6 'esearch sho4s that it is highly

likely that no losses by stores4ill occur gi!en locations

therefore no 9little: risk of loss&6 5unds de(osited in trust fund byfranchisees ensure that deal4ill go through and there 4ill besufficient funds to run the store minimi<es risk of franchisefailure&

6 Fo real sale since stores not yeto(ened&

6 In addition, risks and re4ardsnot yet (assed since thecom(any has agreed to absorbfirst fi!e years of losses stillhas risk of loss&

'ecommendations7

3efer recognition of re!enues until stores o(enthere is too much uncertainty u( tothat (oint&


.

7/25/2019 sm ch (17).doc



IC 17,1 (Co"!i"&e8)

Issue7 *hould the additional shares be recorded as (art of the cost of sale of franchiseH

'ecord cost 3o not record6 If (robable that stores 4ill be

(rofitable 9and measurable:should record cost in order tosho4 true (rofitresearchsho4s stores 4ill not sufferlosses and franchisees ha!ede(osited funds ensuring thatstores 4ill ha!e sufficiento(erating ca(ital&

6 More trans(arent&

6 Too early to tellnotmeasurable&

6 'esearch may not be accurate&

Conclusion7 3o not record yetthere is too much uncertainty, but must note disclose&

Issue7 o4 to account for the long6term debt

)art debtB(art e;uity All debt D measure at "11 or "$16 Com(ound instrument(art

debt and (art e;uity&6 Economic substance is that the

right to con!ert adds e2tra !alueembedded call o(tion shouldbe accounted for se(arately&

6 More trans(arent&6 Com(any ust thinking of going

(ri!ate not necessarily likelyor (robable at this stage& Wouldonly measure as all debt 4herecontingency is beyond control of com(any 9not the case here asthe com(any has the finaldecision as to 4hether to go(ri!ate:&

6 Ignoring the contingency regoing (ri!ate, the con!ersionfeature results in the com(any(aying a !ariable number ofshares and thus the instrumentis debt& They 4ill either re(aythe debt in cash or issue a!ariable number of shares tomake u( the face !alue&

6 If the com(any goes (ri!ate, thedebt is automatically re(ayableat "$1&

6 The e2tra (remium is not(ayable until a decision is madeto sell the com(any 9has not yetha((ened:&

Conclusion7 8ook as a liability since there is a contractual obligation to (ay either cashor a !ariable number of shares&


.

7/25/2019 sm ch (17).doc



TIME AN$ P*RPOSE OF RITING ASSIGNMENTS

WA ".6" 9Time $+D#+ minutes:

)ur(oseto (ro!ide the student 4ith an understanding of ho4 earnings (er share isaffected by (referred di!idends and con!ertible debt& The student is re;uired to e2(lainho4 (referred di!idends and con!ertible debt are handled for E)* calculations& Thestudent is also re;uired to e2(lain 4hen the =treasury stock method> is a((licable inE)* calculations& 5inally, the student also must discuss 4hy )BE ratios might be high&

WA ".6$ 9Time $+D#+ minutes:

)ur(oseto (ro!ide the student 4ith an o((ortunity to articulate the conce(ts and(rocedures related to stock o(tions and anti6dilution& 'es(onses are (ro!ided in a4ritten memorandum& ther (arts of the ;uestion e2amine the im(act of the IA*8s(ro(osals on some changes to E)*&

WA ".6# 9Time $+D#+ minutes:

)ur(oseto (ro!ide the student 4ith an o((ortunity to look at ho4 contingentlyissuable shares 4ill im(act the E)* calculation&

WA ".6% 9Time $+D#+ minutes:

)ur(oseto (ro!ide the student 4ith an understanding of the current financial re(ortingissues on (er share data other than earnings and an o((ortunity to articulate theconce(ts related to =(er share> information& The student is also re;uired to (ro!ide abalanced (oint of !ie4 by arguing for both sides&


.

7/25/2019 sm ch (17).doc



SOL*TIONS TO RITING ASSIGNMENTS

A 17,1

9a: 3i!idends on outstanding (referred shares must be subtracted from net income or

added to net loss for the (eriod before com(uting E)* on the common shares&

This generali<ation 4ill be modified by the !arious features and different

re;uirements (referred shares may ha!e 4ith res(ect to di!idends& Thus, if

(referred shares are cumulati!e, it is necessary to subtract the current di!idend

re;uirements from net income 9or to add them to net loss: regardless of 4hether

or not the (referred di!idends 4ere actually declared& Where the (referred shares

are noncumulati!e, only (referred di!idends actually declared during the current

(eriod need be subtracted from net income 9or added to net loss: to arri!e at the

income to be used in E)* calculations&

If the (referred shares are con!ertible into common shares, then 4hen assuming

con!ersion, di!idend re;uirements on the (referred shares are not deducted from

net income& This a((lies 4hen testing for (otential dilution to determine 4hether or

not the diluted E)* figures for the (eriod are lo4er than earnings (er common

share figures&

9b: When o(tions and 4arrants to buy common shares are outstanding and their

e2ercise (rice 9i&e&, (roceeds the cor(oration 4ould deri!e from issuance of

common shares (ursuant to the 4arrants and o(tions: is less than the a!erage

(rice at 4hich the com(any could ac;uire its outstanding shares as treasury

shares, the treasury stock method is generally a((licable& In these circumstances,

e2istence of the o(tions and 4arrants 4ould be diluti!e& o4e!er, if the e2ercise

(rice of o(tions and 4arrants e2ceeded the a!erage (rice of the common shares,

the cash (roceeds from their assumed e2ercise 4ould (ro!ide for re(urchasing

more common shares than 4ere issued 4hen the 4arrants 4ere e2ercised,

thereby reducing the number of shares outstanding& In these circumstances,

assumed e2ercise of the o(tions and 4arrants 4ould be antidiluti!e, so e2ercise

4ould not be (resumed for (ur(oses of com(uting diluted E)*&


.

7/25/2019 sm ch (17).doc



A 17,1 (Co"!i"&e8)

9c: In arri!ing at the calculation of diluted E)* figures 4here con!ertible debentures

are assumed to be con!erted, their effecti!e interest cost 9net of ta2: is added

back to net income as the numerator element of the E)* calculation 4hile the

4eighted a!erage number of shares of common shares into 4hich they 4ould be

con!ertible is added to the shares outstanding to arri!e at the denominator

element of the calculation&

If the bonds can be settled in cash or shares at the issuers o(tion, it is assumed

that shares 4ould be issued and they are included in the calculation of the diluted

E)* as described abo!e&

9d: The )BE ratio should be used 4ith caution& At first look the )BE ratios for these t4o

com(anies a((ear to be far too high, much higher than the a!erages, indicating

that the shares are o!er(riced& o4e!er, there may be some !alid e2(lanations&)art of this multi(le is an indication of in!estors e2(ectations of gro4th in

earnings& In the case of Ma(le Jeaf 5oods, 4hat 4e 4ould really 4ant to kno4 is

4hat the forecasted E)* isH We kno4 from the cha(ter material that in $11/, the

com(any had total unusual losses of @"1# million due to (roduct recalls,

restructuring costs and other related costs& This 4ould significantly reduce the

E)* and increase the )BE multi(le on these de(ressed earnings 9assuming no

change in share (rice:& o4e!er, if these losses are likely not to recur, and a

forecast is made for the ne2t years earnings 4ithout these losses, 4ould the )BE

ratio be more in lineH As the E)* increases, the )E multi(le 4ould decline& 9In

fact, doing this the )BE ratio is around "#, more in line 4ith the market a!erages&:

A similar analysis can be done for 5inning& uestions 4e 4ould need to ans4er

are7 9": Is 5innings earnings abnormally lo4 for $11/H If the commodity market

4as de(ressed, im(acting 5inning, this 4ould cause the E)* to be lo4, and the

resulting )BE multi(le to be high 9gi!en no change in the share (rice:& 9$: What is

the commodity related industries forecasted to do, and by im(lication, 4hat are

5innings forecasted earnings for $110 or e!en $1"1H If in!estors e2(ect the E)*

for ne2t year to be higher, then the )BE multi(le 4ould decline, gi!en no change in

the share (rice&


.

7/25/2019 sm ch (17).doc



A 17,9

3ear Mr& Kacskos7

9a: I ho(e that the follo4ing brief e2(lanation hel(s you understand 4hy your 4arrants

4ere not included in o4ats earnings (er share calculations&

Earnings (er share 9E)*: (ro!ides income statement users a ;uick assessment of the

earnings that 4ere generated for each common share outstanding o!er a gi!en (eriod&

When a com(any issues only common and (referred shares, it has a sim(le ca(ital

structureL conse;uently, the only ratio needed to calculate E)* is the follo4ing7 9Fet

Income D )referred 3i!idends: Fumber of Common *hares utstanding&

o4e!er, cor(orations that ha!e a !ariety of other securities outstanding con!ertible

bonds, con!ertible (referred shares, stock o(tions, and stock 4arrantsha!e acom(le2 ca(ital structure& 8ecause these securities could be con!erted to common

shares, they ha!e a (otentially =diluti!e> effect on E)*&

In order not to mislead users of financial information, generally acce(ted accounting

(rinci(les re;uire that E)* calculations be conser!ati!e& Thus, a security 4hich might

dilute E)* must be figured into E)* calculations as though it had been con!erted into

common shares& 8asic E)* assumes only the 4eighted a!erage of common shares

outstanding 4hile diluted E)* assumes that any (otentially diluti!e security has been

con!erted&

*ome securities, ho4e!er, might actually inflate the E)* figure rather than dilute it&

These securities are considered antidiluti!e and are e2cluded from the E)* calculation&

Take, for e2am(le, your o(tions& The calculations belo4 (ro!ide a good e2am(le of ho4

o(tions are treated in diluted E)*& In these calculations, 4e assume that o4at 4ill

(urchase treasury stock using the (roceeds from the e2ercise of your o(tions&


.

7/25/2019 sm ch (17).doc



A 17,9 (Co"!i"&e8)

When you e2ercise your "+,111 o(tions at @#1, the com(any does not sim(ly add

"+,111 shares to common shares outstandingL rather, for diluted E)*, o4at is

assumed to (urchase and retire "/,111 shares of treasury stock at @$+ 4ith the

(roceeds 99"+,111 @#1: B @$+ (er share:& Therefore, if you add the "+,111 e2ercised

o(tions to the common shares outstanding and then subtract the "/,111 shares

(resumably (urchased, the number of shares outstanding 4ould be reduced to 0.,111

9"11,111 N "+,111 D "/,111:& 8ecause the ratios denominator 4ould be reduced by this

inclusion, it 4ould cause the ratio to increase, 4hich defeats the (ur(ose of the dilution&

These o(tions are considered antidiluti!e and, therefore, are not included in E)*

calculations&

This e2(lanation should address any concerns you may ha!e had about the use of your

4arrants in E)* calculations& If you ha!e any further ;uestions, (lease call me&

*incerely,

Your name, Accountant

9b: If the year6end market (rice 4as @##, then using the same (rocedure as described

abo!e, 4e 4ould ha!e the follo4ing im(act on the number of common shares

outstanding&

When you e2ercise your "+,111 o(tions at @#1, the com(any 4ould no4 be able to

(urchase and retire only "#,-#- shares of treasury stock at @## 4ith the (roceeds

99"+,111 @#1: B @## (er share:& Therefore, if you add the "+,111 e2ercisedo(tions to the common shares outstanding and then subtract the "#,-#- shares

(resumably re(urchased, the number of shares outstanding 4ould be increased to

"1",#-% 9"11,111 N "+,111 D "#,-#-:& Conse;uently, the ratios denominator 4ould

be increased by this inclusion, and the E)* 4ould be diluted as follo4s7

@$$/,111 B "1",#-% O @$&$+

The basic E)* 4ould ha!e been @$&$/ 9$$/,111 B "11,111: so there is a dilution of

@1&1# (er share&


.

7/25/2019 sm ch (17).doc



A 17,9 (Co"!i"&e8)

9c: If the o(tions are recorded at fair !alue, 4ith changes reflected immediately in the

net (rofit or loss for the (eriod, then the earnings has already been adusted to

reflect the benefits or losses due to these o(tions& *ince the o(tions 4ill be settled

in cash, not shares, the denominator should not be adusted&

9d: *olutions from students 4ill !ary D the follo4ing is a list of the key (oints7

8usiness reasons for using stock o(tions7

6 To satisfy (re6em(ti!e right

6 Enhance marketability of another security or reduce costs

( Gi!e key e2ecuti!es com(ensation 9com(ensatory:

( 'ecruit and retain key e2ecuti!es 9(ro!ide incenti!e for o4nershi( of the

business and (artici(ate in 4ealth accumulation:

( 5or non6com(ensatory stock o(tion (lans, mainly to raise ca(ital

( Com(ensation in a (urchase or ac;uisition transaction

( As P(oison (illP to make entity less attracti!e for takeo!er

( edging and s(eculation to reduce risk

6 As fractional shares in stock di!idends


.

7/25/2019 sm ch (17).doc



A 17,

The first issue to recogni<e is that these are contingently issuable shares&

Conse;uently, as described in IA* ## (aragra(h +$, they are only included in the

calculation of the diluted E)* 4hen the conditions ha!e been met& nce the conditions

ha!e been met, the diluti!e shares are included from the beginning of the (eriod or the

date of the agreement, if later&: If the conditions are not satisfied, then the number of

shares included in the diluted factor 4ill be the number of shares to be issued as if it

4as the end of the contingency (eriod&

Calculations of the basic and diluted E)* are as follo4s for *ea4ay7

C-lc&l-!io" of B-sic EPS 931 9315 9312

Earnings for the year 9": @$$,111,111 @"0,111,111 @$%,111,111

Calculation of denominator riginal shares outstanding Dbeginning of year +,111,111 +,111,111 +,111,111Weighted a!erage of sharesissued due to T4eel "11,111 +1 +1,111 "11,111 "11,111Issued due to meeting (rofita!erage 9see note belo4: 1 1 +1,111

*hare issued due to number ofcustomers

August ", $1"# D #,111 +B"$ ",$+1 #,111 #,111Fo!ember ",$1"#6 #,111 $B"$ +11 #,111 #,111March ", $1"% D -,111 "1B"$ +,111 -,111May ", $1"% D #,111 /B"$ $,111 #,111*e(tember ", $1"% D -,111 %B"$ $,111 -,111Total shares +,1+",.+1 +,""+,111 +,".",111

8asic E)* 9": B 9$: @%&#+ @#&." @%&-%

Fote7 The a!erage (rofit for the three years, $1"#, $1"% and $1"+, is not kno4n until

the end of $1"+& At the end of $1"+, 4e can calculate the a!erage (rofit for the three

year (eriod to be @.&# million 99@. N @0 N@ - :B #:& This amount is greater than the @+

million re;uired so the condition has been met& The number of shares for the basic

E)* is adusted for year $1"+ only, since this is 4hen the condition 4as kno4n&


.

7/25/2019 sm ch (17).doc



A 17, (Co"!i"&e8)

C-lc&l-!io" of $il&!e8 EPS 931 9315 9312Earnings for the year 9": @$$,111,111 @"0,111,111 @$%,111,111

Calculation of denominator riginal shares outstanding D beginningof year

+,111,111 +,111,111 +,111,111

Weighted a!erage of shares issued dueto T4eel "11,111 +1

+1,111 "11,111 "11,111

Issued due to meeting (rofit a!erage9see note belo4:

1 +1,111 +1,111

*hare issued due to number ofcustomers

August ", $1"# D #,111 +B"$ ",$+1 #,111 #,111Fo!ember ",$1"#6 #,111 $B"$ +11 #,111 #,111March ", $1"% D -,111 "1B"$ +,111 -,111May ", $1"% D #,111 /B"$ $,111 #,111*e(tember ", $1"% D -,111 %B"$ $,111 -,111Total shares +,1+",.+1 +,"-+,111 +,".",111

3iluted E)* 9": B 9$: @%&#+ @#&-/ @%&-%

5or the a!erage (rofit calculation D an a!erage of @+ million (er year, for # years, is

treated as a total of @"+ million o!er # years& 8y the end of $1"#, only @. million has

been earned in (rofits, 4hich is belo4 the threshold& 8y the end of $1"%, theaccumulated total of (rofits is @"- million, 4hich is no4 greater than the @"+ million

threshold& Therefore, for the diluted E)*, the +1,111 shares are assumed to be issued&

In $1"+, the a!erage for the three years is no4 kno4n, and so the +1,111 shares are

included in the basic E)*&


.

7/25/2019 sm ch (17).doc



A 17,5

The (ros of allo4ing alternate (er share amounts to be included in the annual financial

statements of com(anies are that such amounts may (ro!ide additional information that

is useful to in!estors and other financial statement users& The (ractice of re(orting cash

flo4 (er share in the financial statements 4as long established and 4ell acce(ted in

Canada, and many felt that discontinuing this (ractice 4as a disser!ice to financial

statement users& *ome argued that this 4ould result in a loss of information, and others

argued that it 4ould result in less reliable information since it 4as likely that cash flo4

(er share data 4ould instead be re(orted else4here in the annual re(ort 4here it 4ould

be unaudited and therefore less reliable& ther ty(es of (er share data that could be

(ro!ided are7 o(erating earnings (er share, assets (er share and e;uity (er share& As

long as the note disclosure (ro!ides the details of ho4 the numerator and denominator

are determined, this could (ro!ide useful information to shareholders&

The cons of allo4ing alternate (er share amounts to be included in the financial

statements of com(anies are that there is a risk that such data 4ill be used in (lace of

earnings (er share, 4hich is a much more conce(tually sound measure& Cash flo4, in

any of its !arious definitions, is not a residual amount and does not accrue to the

common shareholder, 4hich makes it conce(tually 4eak to e2(ress an amount on a (er

share basis& There is also a (roblem 4ith determining 4hat cash flo4 amount to use as

the numerator& There are many different (ractices for both calculation and (resentation,

and such differences, as 4ell as the lack of standardi<ation, can hinder com(arability

among financial statements and be (otentially misleading to users& Analysts may not

su((ort the disclosure of other (er share amounts mainly due to the lack of agreement

on the numerator and the lack of conce(tual basis for this measure&

9b: Arguments to su((ort com(rehensi!e income (er share7

• As the accounting (olicies no4 define =income> to include other com(rehensi!e

income items such as unreali<ed gains and losses, conce(tually, there is su((ort

to measure com(rehensi!e income (er share&• The current standards could easily be a((lied to the com(rehensi!e income, 4ith

fe4 changes re;uired&• Com(anys share (rices should include the recognition of other com(rehensi!e

income items, so (er share data could be used to (ro(erly reflect (rice earnings

multi(les&


.

7/25/2019 sm ch (17).doc



A 17,5 (Co"!i"&e8)

Arguments to su((ort not re(orting com(rehensi!e income (er share7

• ther com(rehensi!e income items relate to unreali<ed gains and losses thatare not yet recogni<ed as (art of (rofit or losses for s(ecific reasons& As the

im(act of these items on (rofit or loss 4ill likely change once recogni<ed, it

4ould be (remature to include these items in a (er share measure& In fact,

there are some items that affect CI but 4ill ne!er im(act earnings such as

re!aluation sur(luses, actuarial gains and losses on (ensions or gains and

losses on in!estments classified as 5Q through CI&• o4 4ould com(rehensi!e income (er share be calculated D is it (ossible to

eliminate some CI itemsH What 4ould be the treatment, for e2am(le, of

re!aluation sur(luses and actuarial gains and lossesH As noted abo!e, these

items 4ill ne!er im(act (rofit or loss, so should they be eliminated in the

calculation of com(rehensi!e income (er yearH

• Com(anies in similar industries may ha!e !ery different other com(rehensi!e

income items de(ending on their in!ol!ement in hedging, foreign subsidiaries,

and accounting (olicies ado(ted for the (ro(erty, (lant and e;ui(ment and

(ension (lans& These differences could ha!e significant im(act on (er share

calculations that ha!e really little to do 4ith o(erating (rofit& Conse;uently,

4hen (rice earnings multi(les are calculated and com(ared, there might be

significant differences e!en 4hen o(erations are !ery similar&

9c: E2am(les 4ill !ary de(ending on 4hat the students find& ne e2am(le is *tora

Enso y that (ro!ides additional (er share disclosure on7

• Com(rehensi!e income continuing o(erations (er share,

• Com(rehensi!e income discontinued o(erations (er share,

• ther com(rehensi!e income (er share

• *hareholders e;uity (er share

• Ca(ital re(aymentBdi!idend declared (er share&


.

7/25/2019 sm ch (17).doc



RESEARCH AN$ FINANCIAL ANAL@SIS

RA17,1 BRITISH SW@ BROA$CASTING GRO*P PLC

9a: In note "1, the com(any (ro!ides the details of its calculations of basic

and diluted earnings (er share as follo4s7

9319(i" millio"s)

9311(i" millio"s)

Calculation of 4eighted a!eragenumber of sharesrdinary shares 9in millions: ",.#" ",.+#E*) ordinary shares 6"1 6"1Fumber for the basic E)* ",.$" ",.%#

3iluti!e ordinary shares from stocko(tions

"- $1

Total number for diluted ",.#. ",.-#

)rofit or loss attributable to e;uityshareholders of (arent

R/.+ R.$+

8asic E)* +1&/( %"&-(3iluted E)* +1&%( %"&"(

The com(any notes that fe4er than " million share o(tions ha!e been e2cluded from

the calculation of diluted E)* because they 4ould be antidiluti!e 9$ million in $1"":&

As (er note $+, the com(any had ",-.%,%+%,//" ordinary shares outstanding in $1"$and ",.+$,/%$, +00 ordinary shares outstanding for $1""&

Fote $+ (ro!ides no disclosure about the E*) trust shares of "1 million that ha!e

been deducted in $1"$ 9"1 million in $1"":& The note does outline a !ariety of o(tion

(lans, including the E2ecuti!e *hare (tion (lan&

We kno4 from the ;uestion that the com(anySs share (rice traded bet4een R-&0. and

R/&%0 (er share& Fote $+ also (ro!ides details of the !arious o(tions outstanding at

!arious e2ercise (rices&

As the highest range of e2ercise (rices is R.&116R/&11 and the share (rice traded 4ithin

that range during the year, the items that are anti6diluti!e are all those that 4ouldincrease the earnings (er share or reduce the loss (er share& These are o(tions that

are considered unlikely to be e2ercised&


.

7/25/2019 sm ch (17).doc



RA17,1 (Co"!i"&e8)

The number of share a4ards that are antidiluti!e agrees 4ith the note disclosure in Fote

"1 of " million& o4e!er, the number of remaining o(tions outstanding is #+ million&

Many of these a4ards are contingently issuable a4ards 4hich are only included in the

diluted E)* once the conditions ha!e been met& o4e!er, 4e ha!e not been gi!en any

information as to 4hether or not the (erformance targets ha!e been met& Conse;uently

the number of diluti!e shares of "- million cannot be !erified&

9b: In order to determine the number of o(tions that are diluti!e, 4e need to look at the

e2ercise (rices of the o(tions and com(are 4ith the a!erage share (rice of the

com(any during the year& The a!erage share (rice is assumed to be R.&.# 9R-&0.N

R/&%0:B$:& In looking at the o(tions that are outstanding 4ith (rices less than R.&.#, 4e

determined the follo4ing at ?une #1, $1"$ from note $%7 9Fote 4e assumed that any

o(tions that had e2ercise (rices in the R.&11 to R/&11, had e2ercise (rices greater thanR.&.#&

Fumber of o(tions 'ecei!ed on e2ercise

R

R1&1 6 R"&11 9these are all 1

as (er the note:

$+,#1#,#11 1

R#&11 6 R%&11 assumed

a!erage of R#&+1

R%&11 6 R+&11 assumed

a!erage of R%&+1

R+&11 6 R-&11 assumed

a!erage of R+&+1

R-&11 6 R.&11 assumed

a!erage of R-&+1

+./,"++

",+0.,-"$

-,#/",#%/

",#"1,".1

$,1$#,+%#

.,"/0,$+%

#+,10.,%"%

/,+"-,"1+

Total o(tions #+,".1,+/+ +$,/$-,#"-

Fumber of shares to buyback using e2ercise

(roceeds and assuming

(rice of R.&.#

-,/##,0#+

Fet number of shares after

treasury stock method

$/,##-,-+1


.

7/25/2019 sm ch (17).doc



RA17,1 (Co"!i"&e8)

As (er Fote $+, these *enior Management *cheme o(tions ha!e nil as an e2ercise

(rice&

9c: In note "1, the com(any also discloses adusted (rofit (er share on a basic and

diluted basis& The com(any has made adustments for items that are not com(arable

across the years, distorting the analysis& The com(any suggests that the adusted (rofit

is a better indicator of o(erating (erformance& The table belo4 sho4s the calculation of

the adusted (rofit and the items that ha!e been adusted&

Millio"s of X 9319 9311

)rofit or loss for the year 01- .+/

Costs 9reco!ery: related to Fe4 Cor(oration 9#": "+Costs related to restructuring "" 6

Ji!ing TQ restructuring costs 6 $-

'eco!ery of im(ort duty 6 9%":

'C5 fee 4rite6off + 6

'emeasurement of deri!ati!es 9not hedges: 9"0: 9"/:

)rofit on dis(osal of ?Q 9.: 6

)rofit on dis(osal of a!ailable for sale

in!estment 6 90:

Ta2 credit on settlement of liability 6 9"+:

Ta2 effect on abo!e items "1 0 Adusted (rofit or loss /.+ .$+

In re!ie4ing the adustments made, some a((ear to be normal and occurring e!ery

year& E2am(les of these ty(es of adustments are7 remeasurement of deri!ati!es, legal

costs& ften 4ith these adustments the !olatility of the adusted (rofits is greatly

reduced in com(arison to the unadusted (rofit&

5rom an in!estors (oint of !ie4 any additional information is useful& o4e!er, the

in!estor should make their o4n decision as to 4hether these adustments are actually(erformance related or not&


.

7/25/2019 sm ch (17).doc



RA17,9 MOLSON COORS BREING COMPAN@

9a: The com(any (ro!ides (er share data on the follo4ing7

• 8asic income (er share for continued o(erationsL

• 8asic income (er share for discontinued o(erationsL

• 3iluted income (er share for continued o(erationsL and

• 3iluted income (er share for discontinued o(erations&

9b: The com(any has a com(le2 ca(ital structure& This is e!ident from the fact that

diluted earnings (er share are re(orted on the statements of o(erations& In

re!ie4ing the stockholders e;uity note 0, the com(any has the follo4ing shares

issued and outstanding7

• Class A and Class 8 common shares

• Class A E2changeable and Class 8 E2changeable shares 4hich can be

con!erted at any time at the holders o(tion into the corres(onding commonshares on a one6for6one basis&

As outlined in Fote "", the Class A and Class 8 and the Class A E2changeable

and Class 8 e2changeable all ha!e the same di!idend rights and share e;uitably in

the undistributed earnings& Conse;uently, the number of all of these shares are

added together to determine the number outstanding for the basic E)*, taking into

consideration the 4eighting of changes made in the numbers during the year&

9c: As (er note "%, the com(any has the follo4ing share based com(ensation (lans7

• The "001 Incenti!e a4ard (rogram 4hich a4arded restricted stock and stock

o(tions on Class 8 shares 4ith no a4ards granted in $110, $1"1, or $1""LL

• E;uity com(ensation for non6em(loyee directors 4hich (ro!ides for a4ards of

restricted stock or stock o(tions on Class 8 shares 4ith no a4ards granted in

$110, $1"1, or $1""L

• Com(any incenti!e (lan 6 that (ro!ides a4ards on Class 8 shares in the form

of7 o(tions, restricted stock units, deferred stock units, (erformance units,

(erformance share units, stock o(tions, and stock6only stock a((reciation

rights& These a4ards are gi!en to eligible em(loyees, directors and officers&

)otential common shares e2ist in the form of all of the abo!e a4ards described&


.

7/25/2019 sm ch (17).doc



RA17,9 (Co"!i"&e8)

9d: As detailed in Fote "1, the com(any had some a4ards that 4ere diluti!e as follo4s7

I" millio"s 9311 9313 933?

3iluti!e

(tions and share a((reciation

rights

1&0 1&0 "&1

'estricted share units, (erformance

units and deferred stock units

1&- 1&+ 1&+

Total "&+ "&% "&+

The follo4ing table describes the items that 4ere found to be anti6diluti!e7

In millions $1"" $1"1 $110

3iluti!e(tions and share a((reciation rights

and restricted units

1&0 1&. 1&-

$&+ con!ertible senior notes

con!ertible into Class 8 shares

"1&/ "1&+ "1&+

Warrants to issue Class 8 shares "1&/ "1&+ "1&+

Total $$&+ $"&. $"&-

As e2(lained in Fote "1, the stock o(tion, share a((reciation rights and restricted share

units are anti6diluti!e either because the e2ercise (rice is more than the a!erage market(rice, or as a result of the im(act of the unrecogni<ed com(ensation e2(ense on the

calculation of the assumed (roceeds for the treasury stock method&

The con!ertible bond and 4arrants are anti6diluti!e until the share (rice reaches @+#&%1

and @-.&/$, res(ecti!ely&


.

7/25/2019 sm ch (17).doc



RA17, BCE INC&

9a: The com(any (ro!ides (er share data on the follo4ing7

• 8asic earnings (er share for continued o(erationsL

• 8asic earnings (er share for discontinued o(erationsL

• 3iluted earnings (er share for continued o(erationsL and• 3iluted earnings (er share for discontinued o(erations&

9b: As (er note $#, the com(any has 5irst )referred shares outstanding from *eries to AJ& The di!idend rates !ary from using floating to fi2ed 4ith rates !arying from alo4 of #&#0# to a high of %&/& The di!idends are all cumulati!e& The com(anyalso has common shares outstanding&

9c:

I" millio"s 9311 9313 933? 933 9337

Earningsfrom

continuing

o(eration

$,+.% $,"01 ",.%0 ",1## #,0+0

3i!idends

on

(referred

shares

9""0: 9""$: 9"1.: 9"$%: 9"#":

Earnings

attributable

to Fon6

controlling

interest

9$#%: + 6 6 6

Earnings

from

continuing

o(erations

6 basic

$,$$" $,1/# ",-%$ 010 #,/$/

The adustment relates to the di!idends (aid on the (reference shares& This must bededucted in order to determine the earnings that are a!ailable to the common

shareholders& In $1"" and $1"1 there 4ere deductions for earnings attributable to non6

controlling interest as 4ell& In the (re!ious years the non6controlling interest amount

4as deducted before the earnings figure& This change in (resentation also differed from

$110 as the Fet earnings figure is s(lit bet4een attributable to common shareholders,

(referred


.

7/25/2019 sm ch (17).doc



RA17, (Co"!i"&e8)

shareholders, and non6controlling interest rather than being (resented as earnings from

continuing o(erations D basic&

n re!ie4ing the Consolidated *tatement of Earnings, 4e can see that in $11., thecom(any had a large gain 4hich has been included in ther income& The com(any

sold Telesat 4hich resulted in a gain of @$&# billion& 5or $11/, 4e find that the com(any

had losses on in!estments of @#1/ million resulting from 4rite do4ns due to

im(airments& Also in $11/, the o(erating income 4as do4n due to higher restructuring

costs&

9d: The table belo4 (ro!ides the solution7

I" millio"s 9311 9313 933? 933 9337

Weighted

a!erage

number of

shares

.."&% .+0&1 ..$&0 /1+&/ /1%&/

Earnings

from

continuing

o(erations

basic

$,$$" $,1/# ",-%$ 010 #,/$/

*hares

outstanding

$11.

/1%&/ /1%&/ /1%&/ /1%&/ /1%&/

E)* on $11.

number

$&.- $&+0 $&1% "&"# %&.-

E)* as

re(orted by

the com(any

$&// $&.% $&"$ "&"# %&.-

Change in

E)*

1&"$ 1&"+ 1&1/ 1 1

Im(act on

share (rice

at "$ E)*

@"&%% @"&/1 @1&0- 1 1


.

7/25/2019 sm ch (17).doc



As can be seen from the abo!e table, the reduction in the number of shares has caused

an increase in the share (rice by as much as @"&/1&RA17, (Co"!i"&e8)

9e: As seen in the note on E)* 9note "1 for $1"":, the assumed e2ercise of o(tions

ha!e caused the diluti!e im(act& The diluted E)* only includes the o(tions that

4ould be e2ercised gi!en the a!erage market (rice for the year& All other o(tions

ha!e been e2cluded as they 4ould be anti6diluti!e since their e2ercise (rice 4as

greater than the a!erage market (rice for the year& The number of o(tions that

ha!e been e2cluded 4ere7

• ".,1.1 for $1""

• #,#-/,+1/ for $1"1

• "1,+1/,$#0 for $110,

• %,-%-,+# for $11/, and

•

+,$./,+$0 for $11.


.

7/25/2019 sm ch (17).doc



RA17,5 EPS HARMONIVATION

The follo4ing describes the (ro(osals made in the August $11/ E2(osure 3raft&

8asic Earnings (er *hare

• Mandatorily con!ertible instruments and ordinary shares issued for little or no

consideration 4ill no longer affect basic E)*, as they do not gi!e a right to the

holder to share in the current (rofit or loss&

• Contracts such as (hysically settled (ut o(tions and for4ard contracts re;uire

the entity to re(urchase its o4n shares for cash or other assets& These contracts

are (artici(ating contracts 4hen di!idends are allocated to the financial liability

that re(resents the redem(tion amount of the contracts& As such they are

e2cluded for the calculation of E)* 9both diluted and basic: and treated as

though the re(urchase has already taken (lace& In cases 4here the di!idends

must be (aid back by the holder, then these are not (artici(ating instrument& 9A(artici(ating instrument is one that (artici(ates in di!idends 4ith ordinary

shareholders&: This treatment 4ould be similar for mandatorily redeemable

ordinary shares& The (ro(osal introduces a test to determine 4hether a

con!ertible instrument could be more diluti!e if con!erted& In calculating the

diluted E)*, the more diluti!e treatment is used&

• Instruments that are measured at fair !alue at each re(orting (eriod, 4ith

changes in fair !alue immediately re(orted to (rofit or loss already ha!e

adusted the earnings for any benefits or detriments related to these

instruments& Conse;uently, in calculating the diluted E)*, there 4ill be no

further adustments re;uired to either the numerator or the denominator&• 5or o(tions, 4arrants and their e;ui!alents that are not measured at fair !alue,

the treasury stock method 4ill continue to be used to determine their diluti!e

im(act& o4e!er, the share (rice at the end of the re(orting (eriod, rather than

the a!erage for the (eriod, 4ill be used in order to sim(lify the calculation&

• 5or4ard contracts that (ro!ide for the entity to sell its o4n shares 4ill be

included in the diluted E)* assuming that the shares are sold under the

contract& If these contracts are measured at fair !alue through (rofit or loss,

there 4ill be no im(act on the diluted E)*&


.

7/25/2019 sm ch (17).doc



RA17,5 (Co"!i"&e8)

ne of the main ;ualitati!e characteristics of accounting information is com(arability&

*ince most in!estors and other users are re!ie4ing financial statements of more than

one com(any, it is im(ortant that there be a high degree of com(arability bet4een the

statements& Gi!en the mo!e to increasingly global markets, such com(arability is

im(ortant not ust 4ithin a country but on an international scale&

The 5A*8 decided that the obecti!e of the con!ergence (roect 4as to arri!e at the

same denominator in the diluted earnings (er share calculation& Therefore,

con!ergence 4ill be achie!ed 4hen both &*& GAA) and I5'* result in the same

diluted E)* denominator, regardless of any differences that may arise in the numerator&

*ince E)* is a !ery key figure that is used e2tensi!ely 4hen making com(arisons

bet4een com(anies, the mo!e to harmoni<e the standards for E)* should result in

better financial re(orting by greatly enhancing the com(arability of these figures amongcom(anies re(orting in different countries&

With res(ect to the s(ecific changes discussed in the =E2(osure 3raft>, all of the

changes a((ear to sim(lify the calculation of E)*& This is desirable from the (oint of

enhancing the understandability of financial re(orts, 4hich is another key characteristic

of useful information& Another change to E)* noted is the remo!al of some of the

choices that 4ere (re!iously in!ol!ed in calculating diluted E)* in certain s(ecific

situations& 'emo!ing the choice and (rescribing one s(ecific treatment for each

situation strengthens the obecti!ity of the information& *ince obecti!ity is one of the

key com(onents of reliability, this mo!e should enhance the reliability of the earnings

(er share data re(orted as 4ell&

ne final change (ro(osed in the e2(osure draft is to adust for those instruments that

are measured at fair !alue and therefore already measure their benefit or detriment on

the earnings a!ailable to the ordinary shareholders& These changes 4ill ensure that

there is more consistency in the treatment of these ty(es of contracts in the calculation

of E)*&


.

7/25/2019 sm ch (17).doc



C*M*LATIE COERAGE (C.-p!ers 12,17)

(-)

-"&-r' 1

C-s.666666666666666666666666666666666666666666666666666666666666666666666666666201230333

Bo"8s P-'-ble66666666666666666666666666666666666666666666666666666666 50?330333

Co"!rib&!e8 S&rpl&s S!oc; -rr-"!s66666666666666666 1230333

Co"!rib&!e8 S&rpl&s Co"%ersio" Ri#.!s666666666666 1330333

C-s. recei%e8 for bo"8 iss&e /203330333 x 163 /201230333Alloc-!e8 !o bo"8 6? x /203330333 (50?330333)

Alloc-!e !o <-rr-"!s / x 13 x /2033303334/10333 (1230333)B-l-"ce -lloc-!e8 !o co"%ersio" ri#.!s / 1330333

C-lc&l-!e !.e effec!i%e i"!eres! r-!e o" !.e bo"8s

Excel form&l- >RATE("per0pm!0p%0f%0!'pe)

*si"# - fi"-"ci-l c-lc&l-!or

P / 50?330333

I Q @iel8s 1962:9:

N 2

PMT / (:330333)

F / (203330333)

T'pe 3


.

7/25/2019 sm ch (17).doc



C*M*LATIE COERAGE (C.-p!ers 12,17) JCo"!i"&e8K

HOMELAN$ CORPORATIONBo"8 Effec!i%e I"!eres! T-ble

EFFECTIE INTEREST RATE 1962:92:

C-s.

I"!eres!

(19)

Effec!i%e

I"!eres!

(1962:92:)

$isco&"! C-rr'i"#

Amo&"!$-!e Amor!ie8

141415 /50?330333

1941415 /:330333 /:1202:: /1202:: 50?1202::1941412 :330333 :170299 170299 50?03

194141: :330333 :1?079 1?079 50?29013

1941417 :330333 :990933 990933 50?720311

194141 :330333 :950?? 950?? 203330333

&"e 1

I"!eres! Expe"se (/:1202:: + 3 + 2 19)6666666666667:0?5:

C-s. (/:330333 + 3 + 2 19)666666666666666666666 720333Bo"8s P-'-ble (/1202:: + 3 + 2 19))666666 10?5:

I"!eres! p-i8 o" !.ose bo"8s !.-! <ere co"%er!e8

&"e 1

Bo"8s P-'-ble (/50?330333 + 3) D /10?5:66666666666105710?5:

Co"!rib&!e8 S&rpl&s Co"%ersio" Ri#.!s6666666666666 30333

Commo" S.-res6666666666666666666666666666666666666666666666 102310?5:

66666666666666666666666666666666666666666666666666 (/1330333 + 3)

&l' 1


.

7/25/2019 sm ch (17).doc



C-s.6666666666666666666666666666666666666666666666666666666666666666666666666610720333

Co"!rib&!e8 S&rpl&s S!oc; -rr-"!s6 6 66666666666666 720333

Commo" S.-res6666666666666666666666666666666666666666666666 105230333

666666666666666666666666666666666666666666 (/203330333 /10333 + 13 + 23 + /22)

(/1230333 + 23)


.

7/25/2019 sm ch (17).doc




Oc!ober 1

C-s. (10933 + /22)66666666666666666666666666666666666666666 6::0333

Co"!rib&!e8 S&rpl&s S!oc; Op!io"s66666666 6120333Commo" S.-res666666666666666666666666666666666666666666666610333

(/920333 90333 + 10933)

$ecember 1

Commo" S.-res (130333 + /5263)66666666666 523033

Co"!rib&!e8 S&rpl&s6666666666666666666666666666666666666 6720333

Re!-i"e8 E-r"i"#s66666666666666666666666666666666666666666 6550733

C-s. (130333 + /27633)6666666666666666666666666666666666662730333

C-lc&l-!io" of -%er-#e per s.-re -mo&"!

Tr-"s-c!io" 8-!e To!-l p-i8 i"

for s.-res

S.-res

Iss&e8

Ope"i"# b-l-"ce /503330333 1330333&"e 10 9315 102310?5: 30333

&l' 10 9315 105230333 920333

Oc!ober 10 9315 10333 10933To!-l /70390?5: 12:0933

ei#.!e8 A%er-#e /70390?5:> /5263

12:0933

$ecember 1

Co"!rib&!e8 S&rpl&s S!oc; Op!io"s66666666 6130333

S-l-ries -"8 -#es Expe"se6666666666666666666666666666666130333(/920333 Y /120333)

To recor8 expir' of s!oc; op!io"s 8&e !o f-il&re !o comple!e

emplo'me"! co"!r-c!


.

7/25/2019 sm ch (17).doc




(b)

$ecember 1

I"!eres! Expe"se (/:1202:: + 73)666666666666 530?:C-s. (/:330333 + 73)6666666666666666666666666666666666665930333

Bo"8s P-'-ble6666666666666666666666666666666666666666666666666 130?:

$ecember 1

Re!-i"e8 E-r"i"#s (15:0933 + /9623)66666 :20233

C-s.666666666666666666666666666666666666666666666666666666666666666666:20233

$i%i8e"8s $ecl-re8 m-' -lso be &se8

See p-r! (c) belo<

P-r! c)

ei#.!e8 -%er-#e commo" s.-res -"8 b-sic EPS

$-!e C.-"#es Z s.-res Fr-c!io"

of 'e-r

ei#.!e8

A%#

-" 1,&"e 1 1330333 2419 510::7

&"e 1,&l' 1 D 30333 130333 9419 910::7

&l' 1,Oc! 1 D 920333 1220333 9419 920

Oc! 1,$ec 1 D 10933 12:0933 9419 9:03

$ec 1,$ec 1 , 130333 15:0933 1419 1901

To!-l 15:0933 1970

B-sic EPS > /50333033341970 > /1653


.

7/25/2019 sm ch (17).doc




$il&!e8 EPS

Effec! of e-c. po!e"!i-ll' 8il&!i%e sec&ri!'i) Bo"8 co"%ersio" ri#.!s

I"!eres! expe"se !o &l' 1 o" bo"8s co"%er!e8 /7:0?5:I"!eres! p-i8 o" $ecember 1 o" rem-i"i"#

bo"8s (73) 530?: /237059

Less i"come !-x re8&c!io" from s-%e i"!eres! 92 (19:0?:1)

I"!eres! -%oi8e8 "e! of !-x /301

M-xim&m "&mber of s.-res o" co"%ersio"

of -ll bo"8s (/203330333 4 /10333 + 93) 1330333

Less iss&e8 o" co"%ersio" &"e 10 9315 (170233) 90233Per s.-re effec! /301

> /56:990233

T.erefore 8il&!i%e

ii) -rr-"!s !.ese -re -"!i8il&!i%e bec-&se !.e -%er-#e s.-re price

8&ri"# !.e 'e-r of /29 is less !.-" !.e exercise price of /226

iii) Compe"s-!or' s!oc; op!io"s !.ese -re -"!i8il&!i%e bec-&se !.e

-%er-#e s.-re price 8&ri"# !.e 'e-r of /29 is less !.-" !.eexercise price of /226

Rec-lc&l-!e EPS

I"come -%-il-ble !o

commo" s.-re.ol8ers

ACS

B-sic EPS /503330333 197019 co"%er!ible bo"8 301 90233

To!-l 50301 93?0

T.erefore0 8il&!e8 EPS is /50301493?0 > /9367



.

7/25/2019 sm ch (17).doc



Prese"!-!io" of EPS

B-sic e-r"i"#s per commo" s.-re / 1653$il&!e8 e-r"i"#s per commo" s.-re / 9367


.

7/25/2019 sm ch (17).doc




P-r! 8) S!-!eme"! of S.-re.ol8ers= E&i!'

Commo" s.-res Co"!rib&!e8 S&rpl&s

Re!-i"e8

E-r"i"#sZ /

Commo"

S.-re

Rep&rc.-se

Co"%ersio"

Ri#.!s -rr-"!s

S!oc;

Op!io"sB-l-"ce0 $ecember

10 931 1330333 503330333 /720333 /920333 /123033319 co"%er!ible

bo"8 /1330333 /1230333Por!io" of bo"8

co"%er!e8 30333 102310?5: (30333)-rr-"!s exercise8 920333 105230333 (720333)S!oc; op!io"s

exercise8 10933 10333 (120333)S!oc; op!io"s

expire8 (130333)

Rep&rc.-se commo"s.-res (130333) (523033) (720333) (550733)Ne! i"come 503330333$i%i8e"8 (:20233)B-l-"ce0 $ecember

10 9315 15:0933 :0290:5: 3 /730333 /720333 3 /07?033


.

7/25/2019 sm ch (17).doc



Edition

Documents

sm ch (17).doc