nary shares issued and outstanding. §100,000 cumulative preference shares "A" that are each entitled to dividends of $4.00 per annum. §50,000, $100 non-cumulative preference shares "B" with a stated dividend rate of 3% per annum. At the option of the holder, each preference share can be converted into two ordinary shares on December 31, 2026. §Bonds C – $1,000,000, 6%, semi-annual bonds maturing December 31, 2025. §Bonds D – $2,000,000, 5%, semi-annual bonds maturing June 30, 2031. At the option of the holder, each $1,000 bond can be converted into 10 ordinary shares at any time between January 1, 2026, and December 31, 2026. §Bonds E – $500,000, 3% , semi-annual bonds maturing December 31, 2026. A
The following are selected details of Expression Limited's capital structure as at January 1, 2021:
§200,000 ordinary shares issued and outstanding.
§100,000 cumulative preference shares "A" that are each entitled to dividends of $4.00 per annum.
§50,000, $100 non-cumulative preference shares "B" with a stated
the option of the holder, each
31, 2026.
§Bonds C – $1,000,000, 6%, semi-annual bonds maturing December 31, 2025.
§Bonds D – $2,000,000, 5%, semi-annual bonds maturing June 30, 2031. At the option of the holder,
each $1,000 bond can be converted into 10 ordinary shares at any time between January 1, 2026, and
December 31, 2026.
§Bonds E – $500,000, 3% , semi-annual bonds maturing December 31, 2026. At the option of the holder,
each $1,000 bond can be converted into eight ordinary shares.
§Option F – grants the holder the right to purchase 10,000 ordinary shares at any time before December
31, 2024, for $20 per share.
§Option G – grants the holder the right to purchase 5,000 ordinary shares for $12 per share. The option
expires on December 31, 2022.
During the year Expression issued ordinary shares as follows:
§March 1, 2021 – issued 20,000 ordinary shares.
§October 1, 2021 – issued 10,000 ordinary shares.
§December 1, 2021 – declared and distributed a 20% stock dividend.
Expression was subject to a 30% tax rate. Its net income for the year ended December 31, 2021, totalled
$1,339,000. During the year, Expression declared and paid the stated dividends on both classes of
preference shares as well as $200,000 of dividends on its ordinary shares. The average market price in
2021 for Expression’s ordinary shares was $15.
The recorded exercise prices and number of shares under the stock options plans that can be acquired have
already been adjusted for the stock dividend. Similarly, the recorded conversion factor for the convertible
bonds and preferred shares have already been adjusted for the stock dividend.
Assume that the effective rate of interest on the bonds equals the coupon rate.
Required:
(a)Calculate Expression’s basic EPS for the year ended December 31, 2021.
(b)For each security that is convertible into ordinary shares, evaluate its dilutive effect in terms of its
effects on income available to ordinary shareholders, number of outstanding shares and. Where the
security may be anti-dilutive, state and explain.
(c)Calculate Expression’s diluted EPS for the year ended December 31, 2021
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