Question 1

Presented below is the shareholders equity section of the comparative statements of financial
position of Xander Company on December 31, 2016 and 2015:
Dec. 31, 2016
Dec.31, 2015
12% Preference shares, 100 par
165,000
135,000
Share premium-preference
26,800
18,400
Ordinary shares , 10 par (a)
821,200
799,200
Share premium-ordinary
128,000
117,600
Share premium-treasury shares
3,600
1,600
Retained earnings
942,400
792,920
Total shareholders equity
2,087,600
1,864,720
(a) Par value after June 1, 2016, stock split.
Xander had 32,500 ordinary shares outstanding at December 31, 2014.
The following shareholders equity transactions were recorded in 2015 and 2016:
2015
May 1
June 30
Aug. 1
Sept. 1
Dec.31
2016
Jan. 31
May 1
June 1

Sold 4,500 ordinary shares for 24, par value 20.

Sold 350 preference shares for 124, par value 100.
Issued an 8% stock dividend on ordinary shares. The market value
was 30 per share.
Declared cash dividends of 12% on preference shares and 3 on
ordinary shares.
Net income for the year is 632,400.

Sold 1,100 ordinary shares for 30.

Sold 300 preference shares for 128.
Issued a 2-for-1 split of ordinary shares. The par value of ordinary
shares was reduced to 10 per share.
Sept. 1
Purchased 500 ordinary shares for 18 to be held as treasury shares.
Oct. 1
Declared cash dividends of 12% on preference shares and 4 per share
on outstanding ordinary shares.
Nov. 1
Sold 500 treasury shares for 22.
What is Xanders basic earnings per share for 2015?
8.25
8.04
16.07

16.49

Question 2
The following information was obtained from the statement of financial position of Jason, Inc. on
December 31, 2015:
6% convertible 10-year bonds at par
Ordinary share capital, P20 par, 110,000 shares issued and outstanding
Retained earnings

2,000,000
2,200,000
950,000

Each 1,000 bond can be converted into 40 ordinary shares. On September 30, 2016, the bonds
were all converted into ordinary shares. Jason reported net income of 600,000 in 2016. The
income tax rate is 35%.
What is Jasons basic earnings per share for 2016?
3.16
4.62
5.07
3,45

Question 3
Presented below is the shareholders equity section of the comparative statements of financial
position of Xander Company on December 31, 2016 and 2015:
12% Preference shares, 100 par
Share premium-preference
Ordinary shares , 10 par (a)
Share premium-ordinary
Share premium-treasury shares
Retained earnings
Total shareholders equity

Dec. 31, 2016

Dec.31, 2015
165,000
135,000
26,800
18,400
821,200
799,200
128,000
117,600
3,600
1,600
942,400
792,920
2,087,600
1,864,720

(a) Par value after June 1, 2016, stock split.

Xander had 32,500 ordinary shares outstanding at December 31, 2014.
The following shareholders equity transactions were recorded in 2015 and 2016:
2015
May 1
June 30
Aug. 1
Sept. 1
Dec.31
2016
Jan. 31
May 1
June 1
Sept. 1
Oct. 1
Nov. 1

Sold 4,500 ordinary shares for 24, par value 20.

Sold 350 preference shares for 124, par value 100.
Issued an 8% stock dividend on ordinary shares. The market value
was 30 per share.
Declared cash dividends of 12% on preference shares and 3 on
ordinary shares.
Net income for the year is 632,400.
Sold 1,100 ordinary shares for 30.
Sold 300 preference shares for 128.
Issued a 2-for-1 split of ordinary shares. The par value of ordinary
shares was reduced to 10 per share.
Purchased 500 ordinary shares for 18 to be held as treasury shares.
Declared cash dividends of 12% on preference shares and 4 per share
on outstanding ordinary shares.
Sold 500 treasury shares for 22.

What is Xanders net income for 2016?

475,960
456,160
497,760
495,760

Question 4
The following information was obtained from the statement of financial position of Jason, Inc. on
December 31, 2015:
6% convertible 10-year bonds at par
2,000,000
Ordinary share capital, P20 par, 110,000 shares issued and outstanding
2,200,000
Retained earnings
950,000
Each 1,000 bond can be converted into 40 ordinary shares. On September 30,2016, the bonds
were all converted into ordinary shares. Jason reported net income of 600,000 in 2016. The

income tax rate is 35%.

What is Jasons diluted earnings per share for 2016?
3.14
3.63
5.07
3.47

Presented below is the shareholders equity section of the comparative statements of financial position of
Xander Company on December 31, 2016 and 2015:
Dec. 31, 2016
12% Preference shares, 100
par

Dec.31,
2015

165,000

135,000

26,800

18,400

Ordinary shares , 10 par (a)

821,200

799,200

Share premium-ordinary

128,000

117,600

Share premium-treasury
shares

3,600

1,600

942,400

792,920

2,087,600

1,864,720

Share premium-preference

Retained earnings
Total shareholders equity

(a) Par value after June 1, 2016, stock split.

Xander had 32,500 ordinary shares outstanding at December 31, 2014.
The following shareholders equity transactions were recorded in 2015 and 2016:
2015
May 1

Sold 4,500 ordinary shares for 24, par value 20.

June 30

Sold 350 preference shares for 124, par value 100.

Aug. 1

Issued an 8% stock dividend on ordinary shares. The market

value was 30 per share.

Sept. 1

Declared cash dividends of 12% on preference shares and 3

on ordinary shares.

Dec.31

Net income for the year is 632,400.

2016
Jan. 31

Sold 1,100 ordinary shares for 30.

May 1

Sold 300 preference shares for 128.

June 1

Issued a 2-for-1 split of ordinary shares. The par value of

ordinary shares was reduced to 10 per share.

Sept. 1

Purchased 500 ordinary shares for 18 to be held as treasury

shares.

Oct. 1

Declared cash dividends of 12% on preference shares and 4

per share on outstanding ordinary shares.

Nov. 1

Sold 500 treasury shares for 22.

What is Xanders basic earnings per share for 2015?

8.25

8.04

16.07

16.49

SOLUTION:
Weighted-average number of shares for 2015:
Jan. 1

32,500 x 1.08 (a) x 2 (b) = 70,200 x 12 months

May 1

4,500 x 1.08 (a) x 2 (b) = 9,720 x 8 months

Total

842,400
77,760
920,160

Weighted-average number of shares

(920,160
12)

76,680

(a) 8% stock dividend issued on Aug. 1,2015. (b) 2-for-1 stock split issued on June 1, 2016.

Net income for 2015

632,400

Less: Preference dividend (135,000 x 12%)

16,200

Net income identified with ordinary shares

616,200

Divide by weighted-average number of ordinary

shares

76,680

BEPS for 2015

8.04

Auditing Problems - Basic Earnings Per Share (Difficult)

Question 2
The following information was obtained from the statement of financial position of Jason, Inc. on
December 31, 2015:
6% convertible 10-year bonds at par

2,000,000

Ordinary share capital, P20 par, 110,000 shares issued and

outstanding

2,200,000

Retained earnings

950,000

Each 1,000 bond can be converted into 40 ordinary shares. On September 30, 2016, the bonds were all
converted into ordinary shares. Jason reported net income of 600,000 in 2016. The income tax rate is
35%.
What is Jasons basic earnings per share for 2016?
3.16

4.62

5.07

3,45

SOLUTION:
Weighted-average number of shares outstanding:
Jan. 1 110,000 x 12 months outstanding

1,320,000

Sept. 30 2,000 bonds x 40= 80,000 x 3 months

outstanding

240,000

Total

1,560,000

Weighted-average number of shares (1,560,000/12)

130,000

BEPS (600,000/130,000)

4.62

Auditing Problems - Basic Earnings Per Share (Difficult)

Question 3
Presented below is the shareholders equity section of the comparative statements of financial position of
Xander Company on December 31, 2016 and 2015:
Dec. 31, 2016
12% Preference shares, 100
par

Dec.31,
2015

165,000

135,000

26,800

18,400

Ordinary shares , 10 par (a)

821,200

799,200

Share premium-ordinary

128,000

117,600

Share premium-treasury
shares

3,600

1,600

942,400

792,920

2,087,600

1,864,720

Share premium-preference

Retained earnings
Total shareholders equity

(a) Par value after June 1, 2016, stock split.

Xander had 32,500 ordinary shares outstanding at December 31, 2014.
The following shareholders equity transactions were recorded in 2015 and 2016:
2015
May 1

Sold 4,500 ordinary shares for 24, par value 20.

June 30

Sold 350 preference shares for 124, par value 100.

Aug. 1

Issued an 8% stock dividend on ordinary shares. The market

value was 30 per share.

Sept. 1

Declared cash dividends of 12% on preference shares and 3

on ordinary shares.
Dec.31

Net income for the year is 632,400.

2016
Jan. 31

Sold 1,100 ordinary shares for 30.

May 1

Sold 300 preference shares for 128.

June 1

Issued a 2-for-1 split of ordinary shares. The par value of

ordinary shares was reduced to 10 per share.

Sept. 1

Purchased 500 ordinary shares for 18 to be held as treasury

shares.

Oct. 1

Declared cash dividends of 12% on preference shares and 4

per share on outstanding ordinary shares.

Nov. 1

Sold 500 treasury shares for 22.

What is Xanders net income for 2016?

475,960

456,160

497,760

495,760

SOLUTION:
Weighted-average number of shares for 2015:
Jan. 1

32,500 x 1.08 (a) x 2 (b) = 70,200 x 12 months

May 1

4,500 x 1.08 (a) x 2 (b) = 9,720 x 8 months

842,400
77,760

Total

920,160
Weighted-average number of shares (920,160 /
12)

76,680

(a) 8% stock dividend issued on Aug. 1,2015. (b) 2-for-1 stock split issued on June 1, 2016.
Net income for 2015

632,400

Less: Preference dividend (135,000 x 12%)

16,200

Net income identified with ordinary shares

616,200

Divide by weighted-average number of ordinary

shares

76,680

BEPS for 2015

8.04

2016 net income

Increase in retained earnings (942,400 - 792,920

149,480

Add: Preference dividends in 2016 (165,000 x 12%)

Ordinary dividends (4 x 81,620 (a))

19,800
326,480

Net income for 2016

495,760

(a) 82,120 shares issued-500 treasury shares = 81,620 outstanding

Auditing Problems - Diluted Earnings Per Share (Difficult)

Question 4
The following information was obtained from the statement of financial position of Jason, Inc. on
December 31, 2015:
6% convertible 10-year bonds at par

2,000,000

Ordinary share capital, P20 par, 110,000 shares issued and

outstanding

2,200,000

Retained earnings

950,000

Each 1,000 bond can be converted into 40 ordinary shares. On September 30,2016, the bonds were all
converted into ordinary shares. Jason reported net income of 600,000 in 2016. The income tax rate is
35%.
What is Jasons diluted earnings per share for 2016?
3.14

3.63

5.07

3.47

SOLUTION:
Weighted-average number of shares outstanding:
Jan. 1 110,000 x 12 months outstanding
Sept. 30 2,000 bonds x 40= 80,000 x 3 months
outstanding
Total
Weighted-average number of shares (1,560,000/12)
BEPS (600,000/130,000)

1,320,000
240,000
1,560,000
130,000
4.62

Diluted earnings per share

Net income

600,000

Add: Interest on bonds payable (2,000,000 x 6% x

9/12)

90,000

Less: Income tax (90,000 x 35%)

31,500

Adjusted net income

58,500
658,500

Divide by average number of shares outstanding:

Number of shares for BEPS (see no.1)

130,000

Incremental shares issued on assumed conversion

(80,000x 9/12)
DEPS

60,000

190,000
3.47