Calculate the EPS for Year 4 and the comparative EPS for Year 3. On 1 January Year 4, Mary had 5 million ordinary shares in issue. The followingtransactions in shares took place during the year.1 February A1 for 5 bonus issue1 AprilAl for 2 rights issue at $1 per share. The market price of theshares prior to the rights issue was $4.An issue at full market price of 800,000 shares.1 JuneIn Year 4 Mary made a profit before tax of $3,362,000. It paid ordinary dividends of$1,200,000 and preference dividends of $800,000 on 10% convertible preferenceshares. These convertible preference shares were issued at the start of Year 4 and areconvertible into ordinary shares at the following rates.On 31 December Year 7 15 shares for every $100 of preference shares.On 31 December Year 8 5 shares for every $100 of preference shares.Outstanding share options on 500,000 shares have also existed for a number of yearsThese can be exercised at a future date at a price of $3 per share. The average marketprice of shares in Year 3 was $4 and in Year 4 was $5.On 1 April Year 4 Mary issue $1,000,000 convertible 7% bonds. These are convertibleinto ordinary shares at the following rates.On 31 December Year 6 30 shares for every $100 of bondsOn 31 December Year 7 25 shares for every $100 of bondsOn 31 December Year 8 20 shares for every $100 of bondsTax rate for Year 4 is 30%. The reported EPS for Year 3 was $0.32.

Solution: EPS is calculated as below: EPS=Net Income-Preferred Dividend/Total outstanding common…

for 2 rights issue at SI per share. The market price of ti ares prior to the rights issue was $4. a issue at full market price of 800,000 shares. a profit before tax of $3,362,000. It paid ordinary dividends rence dividends of $800,000 on 10% convertible preferene ble preference shares were issued at the start of Year 4 and a

for 2 rights issue at SI per share. The market price of ti ares prior to the rights issue was $4. a issue at full market price of 800,000 shares. a profit before tax of $3,362,000. It paid ordinary dividends rence dividends of $800,000 on 10% convertible preferene ble preference shares were issued at the start of Year 4 and a

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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