Maria Claudine B. Fortaliza.

Basic Earnings per Share

Average Shares

1. (IFRS)

Monopoly Company had 100,000 equity shares in issue on January 1, 2015. On July 1,
2015, the entity issued 20,000 new shares by way of a 1 for bonus. On October 1, 2015,
the entity issued 28,000 new shares for cash at full market price.

When calculating basic earnings per share, what is the average number of shares?

a. 100,000

b. 117,000

c. 148,000

d. 127,000

Solution: Answer D

January 1 (100,000 + 20,000) 120,000

October 1 (28,000 x 3/12) 7,000

Average shares 127,000

2. (IAA)

On December 31, 2015, Peacock Company had 500,000 ordinary shares issued and
outstanding, 400,000 of which had been issued and outstanding throughout the year
and 100,000 of which were issued on October 1, 2015. Net income for the year was
P5,100,000.

What amount should be reported as basic earnings per share?

a. 10.10

b. 12.75

c. 12.00

d. 11.35
Solution: Answer C

January 1 (400,000 x 12/12) 400,000

October 1 (100,000 x 3/12) 25,000

Average shares 425,000

3. (IFRS)

Precise Company had a profit after tax of P15,000,000 for 2015. The following
appropriations have not been considered in this amount:

Arrears of cumulative preference dividend for 2 years 4,000,000

Ordinary dividends 5,000,000

Preference share premium payable on redemption 1,000,000

Exceptional profit, net of tax 4,000,000

The entity had 3,000,000 ordinary shares of P1 par value outstanding on January 1,
2015. The following share transactions occurred during the current year:

Jan. 1 Issued at P5 per share, P1 paid to date and entitled to

250,000

Participate in dividends to the extent paid up

Apr. 1 Full market price P3 per share issue 600,000

Jul. 1 Purchase of own shares at P3.50 per share 400,000

What amount should be reported as basic earnings per share?

a. 4.85

b. 4.57

c. 3.64

d. 3.94
Solution: Answer A

Net income per book 15,000,000

Exceptional profit 4,000,000

Adjusted net income 19,000,000

Preference dividend for current year (4,000,000/2) (2,000,000)

Preference share premium payable upon redemption (1,000,000)

Net income to ordinary shares 16,000,000

The preference share premium payable on redemption can be considered as dividend

on participating preference share.

January 1 (3,000,000 x 12/12 ) 3,000,000

January 1 (250,000 x 1/5 x 12/12 ) 50,000

April 1 (600,000 x 9/12 ) 450,000

July 1 (400,000 x 6/12 ) ( 200,000 )

Average shares 3,300,000

Basic earnings per share (16,000,000/3,300,000) 4.85

4. (PHILCPA Adapted)

Yasmine Company showed the following information for 2015?

Income from continuing operations 3,765,000

Loss from discontinued operations (540,000)

Net income 3,225,000

Retained earnings - January 1 1,000,000

Dividends paid on 12% preference shares (120,000)

Dividends paid on ordinary shares (700,000)

Retained earnings - December 31 3,405,000

On December 31, 2015, the entity had outstanding 140,000 ordinary shares, and
10,000 preference shares with P100 par value. On April 1, 2015, the entity issued
20,000 ordinary shares.

What amount should be reported as basic earnings per share?

a. 27.00

b. 23.00

c. 26.89

d. 23.03

Solution: Answer B

January 1 (120,000 x 12/12) 120,000

April 1 ( 20,000 x 9/12 ) 15,000

Average shares 135,000

Net income 3,225,000

Dividends on preference shares (120,000)

Net income to ordinary 3,105,000

Basic earnings per share (3,105,000 / 135,000) 23.00

5. (AICPA Adapted)

Rand Company had 20,000 ordinary shares outstanding on January 1, 2015. on May 1,
2015, the entity issued 10,500 ordinary shares. Outstanding all year were 10,000
nonconvertible and noncumulative preference shares on which the annual dividend of
P40 per share was paid in December 2015. Net income was P967,000.

What amount should be reported as basic earnings per share?

a. 18.60

b. 21.00

c. 28.40

d. 38.80
Solution: Answer B

January 1 ( 20,000 x 12/12 ) 20,000

May 1 ( 10,500 x 8/12 ) 7,000

Average number of shares 27,000

Net income 967,000

Preference dividend ( 10,000 x P40) (400,000)

Net income to ordinary shares 567,000

Basic earnings per share (567,000 / 27,000) 21.00

6. (AICPA Adapted)

Strauch Company had one class of ordinary share capital outstanding and no other
securities that are potentially convertible into ordinary shares. During 2015, 100,000
shares were outstanding. In 2016, two distributions of additional ordinary shares
occurred: On April 1, 20,000 shares of treasury were sold, and on July 1, a 2-for-1 share
split was issued. Net income was 410,000 in 2016and P350,000 in 2015.

What amount should be reported as basic earnings per share in the comparative
income statement?

2016 2015

a. 1.78 3.50

b. 1.78 1.75

c. 2.34 1.75

d. 2.34 3.50
Solution: Answer B

2016 basic EPS (410,000 / 230,000) 1.78

January 1, 2016 ( 200,000 x 12/12 ) 200,000

April 1, 2016 ( 20,000 x 2x 9/12 ) 30,000

Average number of shares 230,000

2015 Basic EPS (350,000 / 200,000) 1.75

December 31, 2015 balance 100,000

July 1, 2016 2-for-1 share split 100,000

Total ordinary shares - December 31, 2015 200,000

7. (IAA)

Aubrey Company had 600,000 ordinary shares outstanding on January 1, issued

120,000 shares on May 1, purchased 60,000 treasury shares on September 1, and
issued 90,000 shares on November 1.

What is the weighted average number of shares outstanding for the year?

a. 675,000

b. 750,000

c. 660,000

d. 810,000

Solution: Answer A

January 1 ( 6000,000 x 12/12 ) 600,000

May 1 ( 120,000 x 8/12 ) 80,000

September 1 ( 60,000 x 4/12 ) ( 20,000)

November 1 ( 90,000 x 2/12 ) 15,000

Average shares 675,000

8. (IAA)

Sharon Company provided the following information in relation to share capital for the
current year:

January 1 Share outstanding 1,250,000

April 1 Shares issued 200,000

October 1 Treasury shares purchased 100,000

December 1 Issued a 100% share dividend

What is the number of weighted average shares?

a. 2,700,000

b. 2,775,000

c. 2,750,000

d. 1,350,000

Solution: Answer C

January 1 ( 1,250,000 x 200% ) 2,500,000

April 1 ( 200,000 x 200% x 9/12) 300,000

October 1 ( 100,000 x 200% x 3/12 ) ( 50,000)

Average shares 2,750,000

9. (AICPA Adapted)

Jet Company provided the following information for the current year:

January 1 Share outstanding 200,000

April 1 2-for-1 share split 200,000

July 1 Shares issued 100,000

What is the average number of shares?

a. 400,000

b. 450,000

c. 500,000

d. 540,000

Solution: Answer B

January 1 (200,000 x 2 x 12/12) 400,000

July 1 (100,000 x 6/12 ) 50,000

Average Number of Shares 450,000

10. (AICPA ADAPTED)

Timp Company had the following transactions during the year:

1/1 Ordinary shares outstanding 300,000

2/1 Issued a 10% stock dividend 30,000

3/1 Issued ordinary shares in a "purchase" combination 90,000

7/1 Issued ordinary shares for cash 80,000

12/31 Ordinary shares outstanding 500,000

What is the weighted average number of shares outstanding?

a. 400,000

b. 442,500

c. 445,000

d. 460,000
Solution: Answer C

January 1 (300,000 x 1.10 x 12/12 ) 330,000

March 1 (90,000 x 10/12 ) 75,000

July 1 (80,000 x 6/12 ) 40,000

Average number of shares 445,000

11. (IAA)

On January 1, 2015, Nissan Company had 100,000 ordinary shares outstanding. During
the current year the following events occurred:

March 1 2-for-1 share split

June 1 Issued 30,000 additional shares

September 1 20% stock dividend

What is the weighted average number of shares outstanding for the year?

a. 276,000

b. 261,000

c. 230,000

d. 256,000

Solution: Answer B

January 1 (100,000 x 2 x 1.20 x 12/12 ) 240,000

June 1 ( 30,000 x 1.20 x 7/12 ) 21,000

Average number of shares 261,000

12. (IAA)

Shane Company had 100,000 ordinary shares issued and oustanding on January 1,
2015. During the current year, the entity had the following ordinary share transactions:

April 1 Issued 30,000 previously unissued shares

May 1 Split the share for 2 for 1

June 30 Purchased 10,000 shares for the treasury

July 30 Distributed a 20% stock dividend

December 31 Split the share 3 for 1

What is the weighted average number of shares that should be used in calculating
earnings per share?

a. 288,000

b. 864,000

c. 882,000

d. 972,000

Solution: Answer B

January 1 (100,000 x 2 x 1.20 x 3 x12/12) 720,000

April 1 (30,000 x 2 x 1.20 x 3 x 9/12 ) 162,000

June 30 (10,000 x 1.20 x 3 x 612 ) (18,000)

864,000

13. (IAA)

Helen Company provided the following share transactions for the current year:

January 1 Share outstanding 44,000

February 1 Issued for cash 56,000

May 1 Acquired treasury shares 25,000

August 1 25% stock dividend

September 1 Resold treasury shares 10,000

November 1 Issued 3 for 1 share split 10,000

What is the weighted average number of shares for EPS computation?

a. 305,000

b. 307,500

c. 103,750

d. 311,250

Solution: Answer A

January 1 (44,000 x 1.25 x 3 x 12/12) 165,000

February 1 (56,000 x 1.25 x 3 x 11/12) 192,500

May 1 (25,000 x 1.25 x 3 x 8/12) (62,500)

September 1 (10,000 x 3 x 4/12) 10,000

Weighted average number of shares 305,000

14. (IAA)

Wiscinsin Company had 250,000 ordinary shares outstanding on January 1, 2015.

During 2015 and 2016, the following transactions took place.

2015 March 1 Sold 24,000 shares

July 1 Issued a 20% stock dividend

October 1 Sold 16,000 shares

December 1 Purchased 15,000 shares to be held in treasury

2016 June 1 3 for 1 share split

September 1 Sold 60,000 shares

1. What is the weighted average number of shares for 2015 to be used in the earnings
per share computation for comparative financial statements at the end of 2016?
a. 980,250

b. 329,800

c. 984,000

d. 969,000

2. What is the weighted number of shares for 2016 to be used in the earnings per share
computation for comparative financial statements at the end of 2016?

a. 1,009,400

b. 1,049,400

c. 1,169,400

d. 989,400

Solution: # 1 Answer A

January 1 (250,000 x 1.20 x 3 x 12/12) 900,000

March 1 ( 24,000 x 1.20 x 3 x 10/12 ) 72,000

October 1 ( 16,000 x 3 x 3/12) 12,000

December 1 (15,000 x 3 x 1/12 ) (3,750)

980,250

January 1, 2015 250,000

March 1, 2015 24,000

July 1, 2015 (20% x 274,000) 54,800

October 1, 2015 16,000

December 1, 2015 (15,000)

Outstanding shares - December 31, 2015 329,800

Solution: #2 Answers A

2016

January 1 (329,800 x 3 x12/12) 989,400

September 1 ( 60,000 x 4/12) 20,000

1,009,400

15. (IAA)

During 2011, Innova Company had outstanding 200,000 ordinary shares and 20,000
shares of cumulative preference share capital with a P10 per share dividend. Each
preference share is convertible into 5 ordinary shares. Innova had a P3, 000,000 net
loss for 2011. No dividends were paid or declared. What is the amount of basic loss per
share?

a. 15.00

b. 16.00

c. 10.00

d. 10.67

Solution: Answer B

Net loss 3,000,000

Preference dividend (20,000 x 10) 200,000

Total loss to ordinary shares 3,200,000

Basic loss per share (3,200,000 / 200,000) 16.00