Respond to the
following. Submit journal entries in a table in MS Word and written segments in
the same Word document. Do not submit two separate documents, as only one
document can be accepted. For written answers, please make sure your responses
are well written, formatted per the.csuglobal.edu/fileman/files/schoology/courses/global/documents/CSU-Global-Guide-to-Writing-and-APA-Requirements.pdf”>CSU-Global
Guide to Writing and APA Requirements and have proper citations, if applicable.
As one of the auditors at Banquo & Associates, you have been
assigned to check Duncan Corporation’s computation of earnings per share for
the current year. The controller, Mac Beth, has supplied you with the following
computations.
Net income
$3,374,960
Common shares
issued and outstanding:
Beginning of year
1,285,000
End of year
1,200,000
Average
1,242,500
Earnings per share:
$3,374,960
= $2.72 per share
1,242,500
You have developed the following additional information.
1.
There are no other
equity securities in addition to the common shares.
2.
There are no options
or warrants outstanding to purchase common shares.
3.
There are no
convertible debt securities.
Activities in common shares during the year were as follows.
Outstanding, Jan. 1
1,285,000
Treasury shares acquired, Oct. 1
250,000
Shares reissued, Dec. 1
165,000
Outstanding, Dec. 31
1,200,000
Questions:
1.
On the basis of the
information above, do you agree with the controller’s computation of earnings
per share for the year? If you disagree, prepare a revised computation of
earnings per share.
2.
Assume the same facts
as those presented above, except that options had been issued to purchase
140,000 shares of common stock at $10 per share. These options were outstanding
at the beginning of the year, and none had been exercised or canceled during
the year. The average market price of the common shares during the year was
$25, and the ending market price was $35. What earnings per share amounts will
be reported?
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