ACT360 Module 2 Critical Thinking

Complete the following two questions. Submit journal entries in an Excel file and written segments in an MS
Word document. For written answers, please make sure your responses are well-written, formatted per CSUGlobal guidelines for APA Style, and have proper citation(s), if needed.
As auditor for 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
Common shares issued and
outstanding:
Beginning of year

$3,374,960

1,285,000

End of year

1,200,000

Average

1,242,500

Earnings per share:
$3,374,960
1,242,500

= $2.72 per
share

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.

4.

Activity in common shares during the year was as follows.

Outstanding, Jan. 1
Treasury shares acquired, Oct. 1
Shares reissued, Dec. 1
Outstanding, Dec. 31

1,285,000
1,035,000
1,165,000
1,200,000

Questions:
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
1.

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?
2.