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ACC514 - Ch17-19

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ACC 514
Gwen Roberts

ACC514 SPRING/SUMMER 2013 Ch17 – Diluted Earnings per Share Preferred dividends include CONVERTIBLE prefs If loss from discontinued operations net of tax, add back to NI then find EPS Basic EPS: Income before discontinued operations 3.80 (NI + loss net of tax) / WAC Discontinued operations (0.80) (loss of tax) / WAC Net Income 3.00 NI / WAC Preferred shares  Non cumulative & not declared = DO NOTHING; only deduct DECLARED dividends  Cumulative = deduct ONE year whether declared or not Capital Structure  Simple capital structure – ONLY common & preferred shares issued &/or debt with NO conversion rights  Complex capital structure – common shares + dilutive securities issued (potential common share) EPS – Denominator Dates Outstanding Shares Outstanding Restatement Time /12 Weighted Shares Stock splits or Σ = WAC stock dividends Given: Jan1 – 100,000 shares outstanding March 1 – Issued 20,000 shares June 1 – 50% stock dividend (60,000 additional shares issued) Nov1 – Issued 30,000 shares Dec31 – Ending balance = 210,000 shares outstanding Dates Outstanding Shares Outstanding Restatement Time /12 Weighted Shares Jan – March 100,000 1.5 2/12 25,000 March – June 120,000 1.5 3/12 45,000 June – Nov 180,000 5/12 75,000 Nov – Dec 210,000 2/12 35,000 WAC 180,000  Anti-dilutive securities – if increase basic EPS = not reported ACC514 SPRING/SUMMER 2013 Complex Capital Structure = Diluted EPS If-Converted Method - Assume convert BEGINNING of year - Net income adjusted for:  Interest (net of tax) on convertible debt = (1 – tax) * interest * time issued  Dividends on convertible preferred shares - WAC shares adjusted by additional common shares issued (add to current # shares) Diluted EPS = Adjusted Net Income / Adjusted WAC Shares If multiple securities, order from MOST dilutive to least; MOST dilutive = smallest EPS for that security Options & Warrants – Treasury Stock Method Given: Exercise price of an option (for one share of stock) $ 30 Market price of one share at exercise date: $ 50 Options deemed exercised (total shares): 1,500 Total proceeds from exercise (1500 x $30) $45,000 Shares issued on exercise/to acquire needed cash: 1,500 Assumed reacquisition of shares ($45,000/$50) 900 Incremental shares: 1,500 - 900 600 (potential common shares) Incremental Shares (call) = IN $$ Call: S-K; Put: K-S Option warrants ONLY CHANGE # shares, NOT income # shares to calculate basic EPS + Convert shares – still outstanding BEFORE convert + Converted shares – still outstanding = # shares for diluted EPS Diluted EPS Income # shares EPS Basic EPS Rank from smallest EPS to biggest EPS SMALLEST EPS = MOST DILUTIVE Preferred dividends Dividend / # new shares if convert = Diluted EPS Interest Interest * (1 – tax %) / # new shares if convert = Diluted EPS ACC514 SPRING/SUMMER 2013 Ch18 – Income Taxes Taxable income LOWER than accounting income = pay later = liability Taxable income HIGHER than accounting income = deductible = asset - PE GAAP: Future income taxes method  Future income tax assets/liabilities, future income tax expense - IFRS: Balance sheet liability method  Deferred income tax assets/liabilities, deferred income tax expense Accounting Income +- Differences = Taxable Income Taxable income x current tax % = taxes payable & current income tax expense Permanent Differences - Non-tax deductible expenses  Golf dues  Fines  Non-taxable revenue expenses  Dividends from taxable Canadian corporations Reversible Differences - Cause temporary differences in time (book value & tax value difference) Income Tax Expense X Tax Payable X Future Tax Asset X ; from differences NET tax Future Tax Liability X ; from differences NET tax Future Tax Benefit X ; expense if DEBIT Income Statement Accounting Income X Taxes: Current Income Tax X Future Income Tax X X ; negative future income tax IF ASSET Net Income X ACC514 SPRING/SUMMER 2013 Balance Sheet (PE GAAP) If IFRS, lump together as Future tax liability Current liabilities Future Tax liability X Long term future liabilities Future tax liability X Future Income Tax Balanc
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