Two Different Companies Have Many Similarities,including the Following

question 69

Essay

Two different companies have many similarities,including the following:
• They both earned net income of $3,500,000 for the year ended December 31,2017;
• They are both subject to a 35% tax rate;
• The average price of the companies' ordinary shares during the year was $26; and
• Each company had 1,400,000 ordinary shares outstanding during the year.
They do have slightly different complex capital structures,however.Specifically:
• Company ACE had stock options outstanding the entire year that allowed employees to buy 50,000 ordinary shares for $20 each until December 31,2019.
• Company DUECE had $600,000 in 5% bonds maturing on December 31,2019 that were outstanding the entire year.Each $1,000 bond is convertible into 5 ordinary shares any time before expiry.
Required:
a.Calculate the basic EPS of both companies.
b.Prepare a schedule that sets out the income effect,share effect,and incremental EPS for each company's security that is convertible into ordinary shares.
c.Consider each company's POS and determine whether it is dilutive or antidilutive.

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Definitions:

Sensory Storage

The brief retention of sensory information, serving as a holding area for initial processing of sensory inputs.

Semantic Encoding

The process of converting information into a meaningful context, such as by associating it with other related concepts, to facilitate better memory retention.

Large Capacity

Refers to the ability to hold or contain a large amount of information, substance, or items either physically or mentally.

Long-term Storage

The aspect of memory that pertains to the capacity to store information indefinitely.