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MGAC02H3 Chapter 17: Chapter 17 Notes

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lavenderdonkey6
30 Dec 2011
School
UTSC
Department
Financial Accounting
Course
MGAC02H3
Professor
Daga

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Document Summary

Ifrs requires the following: earnings per share amounts must be shown for all periods that are presented. If there has been a stock dividend or stock split, all per share amounts of prior period earnings should be restated using the new number of outstanding shares. Major types of equity instruments y common (residual, voting) shares y. Potential commons shares: convertible preferred shares, convertible debt, options/warrants, contingently issuable shares, other. Impact on eps calculations y need only calculate basic eps y must calculate basic and diluted eps. It assumes that the convertible securities are converted at the beginning of the period (or at the time of the security issuance, if they are issued during the period). It assumes the elimination of related interest, net of tax or a preferred share dividend. If the debt/equity had been converted at the beginning of the period, there would be no bond interest expense/preferred dividend.

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Related Questions

Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, apublic company, is currently preparing the calculation for basicand diluted earnings per share and the related disclosure forFitzgerald’s financial statements. Below is selected financialinformation for the fiscal year ended June 30, 2014. FITZGERALDPHARMACEUTICAL INDUSTRIES SELECTED BALANCE SHEET INFORMATION JUNE30, 2014 Long-term debt Notes payable, 9% $1,060,000 8% convertiblebonds payable 5,033,000 9% bonds payable 6,081,000 Total long-termdebt $12,174,000 Shareholders’ equity Preferred stock, 6%cumulative, $54 par value, 105,600 shares authorized, 26,400 sharesissued and outstanding $1,425,600 Common stock, $1 par, 10,067,000shares authorized, 1,006,700 shares issued and outstanding1,006,700 Additional paid-in capital 4,002,300 Retained earnings6,007,200 Total shareholders’ equity $12,441,800 The followingtransactions have also occurred at Fitzgerald. 1. Options weregranted on July 1, 2013, to purchase 206,300 shares at $15 pershare. Although no options were exercised during fiscal year 2014,the average price per common share during fiscal year 2014 was $25per share. 2. Each bond was issued at face value. The 8%convertible bonds will convert into common stock at 54 shares per$1,000 bond. The bonds are exercisable after 5 years and wereissued in fiscal year 2013. 3. The preferred stock was issued in2013. 4. There are no preferred dividends in arrears; however,preferred dividends were not declared in fiscal year 2014. 5. The1,006,700 shares of common stock were outstanding for the entire2014 fiscal year. 6. Net income for fiscal year 2014 was$1,516,000, and the average income tax rate is 45%. For the fiscalyear ended June 30, 2014, calculate the following for FitzgeraldPharmaceutical Industries. (Round answers to 2 decimal places, e.g.$2.45.) (a) Basic earnings per share. Basic earnings per share $(b) Diluted earnings per share. Diluted earnings per share $

Amy Dyken, controller at Sweet Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Sweet’s financial statements. Below is selected financial information for the fiscal year ended June 30, 2017.

SWEET PHARMACEUTICAL INDUSTRIES
SELECTED BALANCE SHEET
INFORMATION
JUNE 30, 2017
Long-term debt
Notes payable, 11%

$990,000
7% convertible bonds payable

5,080,000
11% bonds payable

6,120,000
Total long-term debt

$12,190,000
Shareholders’ equity
Preferred stock, 6% cumulative, $50 par value, 95,000 shares authorized, 23,750 shares issued and outstanding

$1,187,500
Common stock, $1 par, 10,000,000 shares authorized, 1,000,000 shares issued and outstanding

1,000,000
Additional paid-in capital

3,920,000
Retained earnings

5,880,000
Total shareholders’ equity

$11,987,500


The following transactions have also occurred at Sweet.

1. Options were granted on July 1, 2016, to purchase 180,000 shares at $15 per share. Although no options were exercised during fiscal year 2017, the average price per common share during fiscal year 2017 was $20 per share.
2. Each bond was issued at face value. The 7% convertible bonds will convert into common stock at 50 shares per $1,000 bond. The bonds are exercisable after 5 years and were issued in fiscal year 2016.
3. The preferred stock was issued in 2016.
4. There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2017.
5. The 1,000,000 shares of common stock were outstanding for the entire 2017 fiscal year.
6. Net income for fiscal year 2017 was $1,500,000, and the average income tax rate is 40%.


For the fiscal year ended June 30, 2017, calculate the following for Sweet Pharmaceutical Industries.

1) Basic Earnings Per Share

2) Diluted Earnings Per Share

The Home Depot Inc. reported the following selected information for the last five years (in USD millions, except earnings per share):

2008 2007 2006 2005 2004
Net Sales $77,349 $79,022 $77,019 $71,100 $63,660
Average Common Shareholders' Equity 21,372 25,970 25,534 23,282 21,104
Average total assets 48,294 48,334 41,712 36,728 32,224
Earnings from continuing operations 4,210 5,266 5,641 5,001 4,304
Discontinued operations 185 495 197 0 0
Net earnings 4,395 5,761 5,838 5,001 4,304
Earnings per share from continuing operations 2.28 2.56 2.64 2.27 1.88
Total earnings per share 2.38 2.80 2.73 2.27 1.88

Instructions:

a)Calculate Home Depot's profit margin, return on common shareholders' equity(for this calculation, note that the company has no preferred shares), and return on assets ratios before and after discontinued operations for each of the last five years. Show all calculations.

b)Evaluate Home Depot's profitability over the last five years before and after discontinued operations.

c)Which analysis above is more relevant to investors? Explain.