Reference no: EM133138805

Question - Part One: For the year ended December 31, 2020, Gaga Lady's Wear Inc. earned $900,000.

Outstanding preferred shares included $300,000 in 4% cumulative preferred shares issued on January 1, 2015 and $1,000,000 in 6% non-cumulative preferred shares issued on January 1, 2016.

Dividends on the cumulative preferred shares were not declared in 2019.

On December 15, 2020, Gaga declared and paid dividends on the 4% cumulative shares including the arrears.

Gaga also declared and paid the $60,000 dividends on the non-cumulative shares.

Required - Determine the net income available to ordinary shareholders for the year ended December 31, 2020.

Part Two: Riverbank Corporation had 200,000 ordinary shares outstanding on January 1, 2020. On May 1, 2020, Riverbank issued an additional 50,000 shares. On June 1, 2020 Riverbank declared a 10% stock dividend. On July 1, 2020, Riverbank repurchased 10,000 ordinary shares and cancelled them. On October 1, 2020, Riverbank issued an additional 100,000 ordinary shares.

Required - Calculate the weighted average number of ordinary shares outstanding in 2020.

Part Three: The net income for Blue Mountain Inc. for the year ended December 31, 2020 was $1,400,000. BMI had 40,000 ordinary shares outstanding at the beginning of the year. Select details of BMI's liabilities and equities follow:

Bonds A-$1,400,000, 10%, 10-year, semi-annual bonds were issued on July 1, 2017. At the option of the holder, each $1,000 bond can be converted into 20 ordinary shares at any time before expiry.

Bonds B-$1,000,000, 6%, 10-year, semi-annual bonds were issued on July 1, 2020. At the option of the holder, each $1,000 bond can be converted into 10 ordinary shares at any time before expiry.

Stock Options - 10,000 options that are exercisable by senior management. Average market price is $30, option price is $20 per share.

BMI's corporate tax rate was 30%.

Required - Assuming that the effective rate of interest on the bonds equals the coupon rate:

a. Calculate BMI's basic earnings per share for 2020.

b. Prepare a schedule that sets out the income effect, share effect, and incremental EPS for each security that is convertible into ordinary shares. Rank the potential ordinary shares by their dilutiveness.

c. Calculate BMI's diluted earnings per share for 2020.