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Assignment Dilutive Securities

This document provides information about two cases involving dilutive securities. Case 1 provides financial information for Fitzgerald Pharmaceutical Industries and asks to calculate basic and diluted earnings per share. Case 2 provides information about convertible bonds issued by Angela AG, and asks to compute the bond components, record the bond issuance, and record bond repurchase at maturity.

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94 views2 pages

Assignment Dilutive Securities

This document provides information about two cases involving dilutive securities. Case 1 provides financial information for Fitzgerald Pharmaceutical Industries and asks to calculate basic and diluted earnings per share. Case 2 provides information about convertible bonds issued by Angela AG, and asks to compute the bond components, record the bond issuance, and record bond repurchase at maturity.

Uploaded by

Johana
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Assignment Dilutive Securities

Case 1
Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company, is currently
preparing the calculation for basic and diluted earnings per share and the related disclosure
for Fitzgerald’s financial statements. Selected financial information for the fiscal year ended
June 30, 2022, is shown below.

The following transactions have also occurred at Fitzgerald.


1. Options were granted on July 1, 2021, to purchase 200,000 shares at €15 per share.
Although no options were exercised during fiscal year 2022, the average price per
ordinary share during fiscal year 2022 was €20 per share.
2. Each bond was issued at face value. The convertible bonds will convert into ordinary
shares at 50 shares per €1,000 bond. The conversion is exercisable after 5 years, and
the bonds were issued in 2020. The interest on the liability component of the
convertible bonds payable for the fiscal year ending June 30, 2022, was €450,000.
3. The preference shares were issued in 2020.
4. There are no preference dividends in arrears; however, preference dividends were not
declared in fiscal year 2022.
5. The 1,000,000 ordinary shares were outstanding for the entire 2022 fiscal year.
6. Net income for fiscal year 2022 was €1,500,000, and the average income tax rate is
40%.

Tommy Andrian (D6181) Dilutive Securities pg. 1


Instructions:
For the fiscal year ended June 30, 2022, calculate the following for Fitzgerald Pharmaceutical
Industries.
a. Basic earnings per share and explain the result!
b. Diluted earnings per share and explain the result!

Case 2
Angela AG issues 2,000 convertible bonds at January 1, 2022. The bonds have a 3-year life and
are issued at par with a face value of €1,000 per bond, giving total proceeds of €2,000,000.
Interest is payable annually at 6%. Each bond is convertible into 250 ordinary shares (par value
of €1). When the bonds are issued, the market rate of interest for similar debt without the
conversion option is 8%.
Instructions:
a. Compute the liability and equity component of the convertible bond on January 1,
2022.
b. Prepare the journal entry to record the issuance of the convertible bond on January 1,
2022.
c. Prepare the journal entry to record the repurchase of the convertible bond for cash at
January 1, 2025, its maturity date.

Tommy Andrian (D6181) Dilutive Securities pg. 2

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