1.A company had the following changes in its stock: The company had 2 million sh

ID: 2406841 • Letter: 1

Question

1.A company had the following changes in its stock: The company had 2 million shares outstanding on December 31, 20X6 On March 31, 20X7, the company paid a 10% stock dividend. On June 30, 20X7, the company sold $10 million face value of 7% convertible debentures, convertible into common at S5 per share. On September 30, 20X7, the company issued and sold 100,000 shares of common stock. . . . company should compute its 20x2/basic earnings per share based on A.|2,225,000 shares. B. 2,250,000 shares C. 3,225,000 shares.

Explanation / Answer

In the calculation of Basic Earnings per Share, only the current outstanding common stock is considered and not the future potential shares

Further, Weighted average number of Equity Shares outstanding during the year is considered for Calculating BEPS:

Following table shows weighted average number of equity shares outstanding during the year:

Weighted Average

Remarks

Outstanding for full year

2000000*12/12 = 2000,000

Taken for full year

10% Stock Dividend

2000000*10% = 200,000

Stock Issued- Bonus Shares are taken for full year irrespective of issue date

Convertible Debentures

NIL

Not Shares, convertible in future

Issue of Shares

100000*3/12 = 25000

Issues on 30 Sep, Outstanding for 3 months

Weighted Average number of Equity Shares relevant for calculating BEPS

2,225,000 shares