Question One

Presented below is information related to Watt Company in its first year of operation. The following information is provided at December 31, 2016, the end of its first year.

Sales revenue $420,000

Cost of goods sold 210,000

Selling and administrative expenses 75,000

Gain on sale of plant assets 45,000

Unrealized gain on non-trading securities 15,000

Financing costs 10,000

Loss on discontinued operations 20,000

Allocation to non-controlling interest 60,000

Dividends declared and paid 12,000


Compute the following

(a) Income from operations,

(b) Net income

, (c) net income attributable to Watt Company shareholders,

(d) Comprehensive income

(e) Retained earnings balance at December 31, 2016.

Question Two

Assume that the following data relative to Kane Company for 2016 is available:

Net Income sh.2, 100, 000

Transactions in Ordinary Shares ChangeCumulative

Jan. 1, 2016, Beginning number 700,000

Mar. 1, 2016, Purchase of treasury shares (60,000) 640,000

June 1, 2016, Share split 2-1 640,000 1,280,000

Nov. 1, 2016, Issuance of shares 120,000 1,400,000

8% Cumulative Convertible Preference Shares

Sold at par, convertible into 200,000 ordinary shares (adjusted for split). Sh.1, 000,000

Share Options

Exercisable at the option price of sh.25 per share. Average market price in 2016, sh.30

(Market price and option price adjusted for split). 60,000 shares


(a) Compute the basic earnings per share for 2016. (Round to the nearest penny.)

(b) Compute the diluted earnings per share for 2016. (Round to the nearest penny.)

Question Three

Rensing, Inc., has $800,000 of 8% preference shares and $1,200,000 of ordinary shares outstanding, each having a par value of $10 per share. No dividends have been paid or declared during 2014 and 2015. As of December 31, 2016, it is desired to distribute $488,000 in dividends.


How much will the preference and ordinary shareholders receive under each of the following assumptions:

(a) The preference is noncumulative and nonparticipating.

(b) The preference is cumulative and nonparticipating.

(c) The preference is cumulative and fully participating.

(d) The preference is cumulative and participating to 12% total.