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TR20-9 Basic and Diluted EPS (LO 20-2, 20-3) Farmhill Ltd. had 1,400,300 common shares outstanding on...

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Accounting

TR20-9 Basic and Diluted EPS (LO 20-2, 20-3)

Farmhill Ltd. had 1,400,300 common shares outstanding on 1January 20X6, the beginning of its 20X6 fiscal year. During theyear, on 1 May, the company issued 520,000 preferred sharesconvertible into common shares on a 1-for-1 basis. These preferredshares have a $0.75 annual cumulative dividend. The investors mustconvert the shares to common shares by 30 April 20X9. During theyear, there were no conversions and the dividends were declared andpaid on 30 November. The company reported net profit of $2,900,800and total comprehensive income of $2,250,600 for the year ended 31December 20X6.

Required:
Calculate the company’s basic and diluted EPS for 20X6.

Answer & Explanation Solved by verified expert
4.4 Ratings (679 Votes)

Farmhill Ltd.
Calculation of Basic EPS
Net profit    2,900,800.00 A
Common Shares    1,400,300.00 B
EPS 2.07 C=A/B
Calculation of Diluted EPS
Calculation of adjusted net profit
Net profit    2,900,800.00
Add: Dividend on Preference Shares       390,000.00
(520000*.75)
Adjusted net profit 3,290,800.00 D
Calculation of adjusted common shares
E F G=E*F
Particulars Units Holding Period(months)
Common Shares    1,400,300.00                      12.00 16,803,600.00
Preference Shares       520,000.00 8     4,160,000.00
Total    1,920,300.00 20,963,600.00 H
Adjusted number of shares as on 31.12.20X6     1,746,966.67 I=H/12
Diluted EPS
Adjusted net profit         3,290,800.00 See D
Adjusted number of shares as on 31.12.20X6         1,746,966.67 See I
Diluted EPS 1.88 D/I

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