CPA REVIEW SCHOOL FOF THE PHILIPPINES

Manila

FINANCIAL ACCOUNTING AND REPORTING

VALIX/VALIX//SANTOS BATCH 93 MAY 2023 CPALE

DILUTED EARNINGS PER SHARE

1. An entity had 100,000 P50 par value ordinary shares outstanding on January 1, 2023. In addition, on
January 1, 2023, the entity had issued 10,000 convertible cumulative 5% preference shares with
P100 par. These preference shares were converted on September 1, 2023. Each preference share was
converted into 6 ordinary shares. The preference dividends for the entire year were paid in full
before the conversion. The entity had no other potentially dilutive securities. Net income for the
current year was P2,000,000.
1. What amount should be reported as basic earnings per share?
a. 16.25 b. 16.67 c. 20.00 d. 19.50
2. What amount should be reported as diluted earnings per share?
a. 12.50 b. 12.19 c. 16.25 d. 15.00
2. An entity had 100,000 ordinary shares outstanding on January 1, 2023. On June 30, 2022, the entity
had issued convertible 7% 200 bonds with face amount of P10,000 per bond or P2,000,000.
The bond as were converted on July 1, 2023 and 200 ordinary shares were issued in exchange for
every P10,000 bond. Net income for 2023 was P3,500,000. The income tax rate is 25%.
1. What amount should be reported as of basic earnings per share?
a. 35.00 b. 25.00 c. 29.17 d. 43.75
2. What amount should be reported as of diluted earnings per share?
a. 25.18 b. 25.75 c. 25.38 d. 25.00
3. An entity had 200,000 ordinary shares issued and outstanding on January 1, 2023.
Unexercised share options to purchase 40,000 ordinary shares at P20 per share were outstanding at
the beginning and end of 2023.
The average market price of ordinary share was P25 during 2023. Net income for the year
was P1,100,000. The income tax rate is 25%. On July 1, 2023, the entity issued a 10% share
dividend.
1. What amount should be reported as basic earnings per share?
a. 5.50
b. 5.00
c. 5.24
d. 6.11
2. What amount should be reported as diluted earnings per share?
a. 4.23
b. 4.81
c. 5.00
d. 5.05
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4. On January 1, 2023, an entity had 500,000 P50 par value ordinary shares and 100,000, 10% P100
par value convertible cumulative preference shares outstanding. The preference shares are
convertible into 100,000 ordinary shares before share dividend and split. The net income was
P25,000,000 and the entity did not declare dividend on preference shares. During the current year,
the following transactions affected the ordinary shares:
February 1 Issued 150,000 shares.
March 1 Issued a 20% share
dividend. June 1 Issued a 3-for-1
split.

1. What amount should be reported as basic earnings per share?

a. 10.46
b. 10.73
c. 10.26
d. 10.68
2. What amount should be reported as diluted earnings per share?
a. 9.42
b. 9.04
c. 8.85
d. 9.26

5. An entity reported the following information on December 31, 2023:

Ordinary share capital 110,000 shares
Convertible noncumulative preference share capital 20,000 shares 10%
convertible bonds payable P3,000,000
Share options to purchase 60,000 shares at P15 were outstanding. Market price of ordinary share
was P25 on December 31, 2023 and averaged P20 during the year. The entity paid the annual
preference dividends of P5 per share. The preference shares are convertible into 40,000 ordinary
shares. The 10% bonds are convertible into 50,000 ordinary shares. The net income for 2023 is
P650,000. The income tax rate is 25%.
1. What amount should be reported as basic earnings per share?
a. 5.00
b. 5.91
c. 4.36
d. 4.40
2. What amount should be reported as diluted earnings per share?
a. 5.00
b. 4.40
c. 4.07
d. 3.94

End