Question

The shareholder’s equity section of Lilac Corporation, a company that follows IFRS, as at December 31, 2020 contained the following data: Preferred shares, $4 non-cumulative, participating, 50,000 shares authorized, 10,000 shares outstanding $ 400,000 Common shares, 1 million shares authorized, 50,000 outstanding 1,225,000 $1,625,000 Net income of $230,000 for 2020 reflects includes a loss from discontinued operations of $5,000. No additional shares were issued or retired during the year. 

 

Required:

1 The company declared and paid dividends totaling $195,000 to the shareholders. There were no dividends in arrears. What amount of this $195,000 went to the preferred shareholders? Preferred share dividends: $__________________________________

2 Assume that instead of your answer calculated in part (a) above, the preferred share dividends for 2020 are a total of $25,000. Calculate the earning per share data for Income from Continuing Operations, Discontinued Operations and Net Income as they should appear in the financial statements of Lilac. 

 3 At December 31, 2019, Aster Inc. had 600,000 common shares outstanding (no preferred shares issued). On October 1, 2020, an additional 120,000 common shares were issued. Aster also had unexercised call options to purchase 60,000 common shares at $14 per share outstanding throughout 2020. The average market price of Aster's common shares was $20 during 2020. Calculate the number of shares that should be used in calculating diluted earnings per share for 2020. With a strike price of

$ No. of Shares: __________________________________

Answer 1

1 The company declared and paid dividends totaling $195,000 to the shareholders. There were no dividends in arrears. What amount of this $195,000 went 

to the preferred shareholders? Preferred share dividends: $

ANSWER

$160,000

 

WORKING

Dividends declared and paid: $195,000

Dividends declared and paid to preferred shareholders: $160,000 ($4 x 10,000 shares)

 

EXPLANATION

The $195,000 in dividends declared and paid is allocated first to the preferred shareholders, since they are entitled to a fixed dividend. The preferred shareholders are entitled to $4 per share, or $40,000 in total. The remaining $155,000 is paid to the common shareholders.

 

 

2 Assume that instead of your answer calculated in part (a) above, the preferred share dividends for 2020 are a total of $25,000. Calculate the earning per 

share data for Income from Continuing Operations, Discontinued Operations and Net Income as they should appear in the financial statements of Lilac. 

ANSWER

Income from continuing operations per share: $4.58

Discontinued operations per share: $0.10

Net income per share: $4.48

 

WORKING

Income from continuing operations: $230,000

Income from discontinued operations: $5,000

Net income: $235,000

Income from continuing operations per share: $4.60 ($230,000 ÷ 50,000 shares

Income from discontinued operations per share: $0.10 ($5,000 ÷ 50,000 shares)

Net income per share: $4.50 ($235,000 ÷ 50,000 shares) 

 

 

 

3 At December 31, 2019, Aster Inc. had 600,000 common shares outstanding (no preferred shares issued). On October 1, 2020, an additional 120,000 common shares were issued. Aster also had unexercised call options to purchase 60,000 common shares at $14 per share outstanding throughout 2020. The average market price of Aster's common shares was $20 during 2020. Calculate the number of shares that should be used in calculating diluted earnings per share 

for 2020. With a strike price of

$ No. of Shares: 

ANSWER

780,000

 

WORKING

Common shares outstanding at December 31, 2019: 600,000

Common shares issued on October 1, 2020: 120,000

Common shares outstanding at December 31, 2020: 720,000

Unexercised call options to purchase common shares at $14 per share: 60,000

Diluted earnings per share: $3.13 ($235,000 ÷ 780,000 shares)