Question
The following balances were taken from the records of Halcyon Digital for the year ended December 31, 2025.
| Account | Amount |
|---|
| Sales Revenue | $2,236,000 |
| Sales Returns and Allowances | 36,000 |
| Cost of Goods Sold | 1,280,000 |
| Selling Expenses | 296,000 |
| Administrative Expenses | 180,000 |
| Interest Expense | 52,000 |
Additional information:
- The income tax rate is 25%.
- Interest expense includes $40,000 on $500,000 of 8% convertible bonds; the bonds are convertible into 50,000 ordinary shares and the conversion is dilutive. The remaining $12,000 relates to a bank loan.
- The weighted-average number of ordinary shares outstanding during 2025 was 150,000.
- Dividends of $24,000 were declared on non-convertible preference shares.
- IAS 33 requires presentation of both basic and diluted earnings per share on the face of the income statement. For diluted EPS, add the after-tax convertible bond interest back to earnings and the conversion shares to the denominator.
Instructions:
Prepare a multi-step income statement for the year ended December 31, 2025, including basic and diluted earnings per share (rounded to two decimal places).
Scoring
- 40% Account naming / line matching
- 40% Amount correctness
- 20% Structure / section placement
IAS 33 — diluted earnings per share
Diluted EPS asks what basic EPS would have been had all dilutive potential ordinary shares converted. Adjust the numerator for anything that would no longer be charged after conversion, adjust the denominator for the extra shares, and include an instrument only if it actually reduces EPS.
Common mistakes
- Including an antidilutive instrument — one that would raise EPS must be excluded.
- Adding the shares from convertible debt without adding back the after-tax interest saved.
- Applying the full share count for instruments issued part-way through the period instead of time-weighting them.
Further readingIAS 33: basic and diluted EPS