| Course | AC301 Intermediate Accounting II |
|---|---|
| Unit | Unit 10 |
| Paper type | Earnings per share problem |
| Length | About 600 words, 5 pages double-spaced |
| Format | APA 7 student paper |
| School | Purdue University Global |
| Program | BS in Accounting |
| Updated | October 2026 |
Free sample paper for AC301 Unit 10
Shares Issued, Split and Bought Back in One Year: A Unit 10 Earnings Per Share Problem for a Geothermal Installer
[Student Name]
Purdue University Global
AC301: Intermediate Accounting II
Unit 10 Earnings Per Share Problem
[Instructor Name]
[Date]
Deepwell Geothermal, Inc. and every amount are composite; the standards and textbook cited are real.
Facts for the Year
1. Net income: $2,400,000.
2. Cumulative preferred dividends for the year: $200,000.
3. Common shares at January 1: 1,000,000.
4. April 1: 200,000 shares issued for cash.
5. July 1: two-for-one stock split.
6. October 1: 120,000 shares bought back as treasury stock.
7. Employee options for 300,000 post-split shares at an exercise price of $15; average market price for the year, $20.
8. Convertible bonds, $4,000,000 face, 5 percent, convertible into 200,000 shares; tax rate 21 percent.
9. Warrants for 100,000 shares at an exercise price of $24.
Weighted Average Shares
Deepwell restates every earlier share count for the split, since dividing each share in two adds no capital and so belongs to the whole year (Financial Accounting Standards Board, 1997).
1. January 1 to March 31: 1,000,000 restated to 2,000,000, for three months: 500,000.
2. April 1 to September 30: 1,200,000 restated to 2,400,000, for six months: 1,200,000.
3. October 1 to December 31: 2,400,000 less 120,000 treasury shares, 2,280,000, for three months: 570,000.
Weighted average: 2,270,000.
The April shares are doubled for the July split, but the treasury purchase is counted only from October, because a split changes how a share is counted from the start of the year while issues and buybacks change the shares outstanding only from their dates.
Basic EPS
Income available to common shareholders: $2,400,000 less $200,000, $2,200,000. Basic EPS: $2,200,000 divided by 2,270,000, $0.97.
The cumulative preferred dividend is deducted whether or not it was declared, because common shareholders cannot receive anything until it is paid.
Ranking the Potential Dilutors
Each security's effect per incremental share is computed first, and the securities are then added from most to least dilutive (Kieso et al., 2019).
1. Options, by the treasury stock method: proceeds of 300,000 times $15, $4,500,000, would buy back 225,000 shares at $20, so 75,000 net new shares and no change in income. Effect per share: zero, the most dilutive.
2. Convertible bonds, by the if-converted method: interest of $200,000 after 21 percent tax, $158,000, is added back, and 200,000 shares are added. Effect per share: $0.79.
3. Warrants: exercise price of $24 is above the $20 average market price, so exercise would reduce shares under the treasury method. Antidilutive and excluded.
Diluted EPS, Step by Step
1. Basic: $2,200,000 over 2,270,000 shares, $0.97.
2. Add options: $2,200,000 over 2,345,000 shares, $0.938. Dilutive, kept.
3. Add bonds: $2,358,000 over 2,545,000 shares, $0.927. Lower than $0.938, so dilutive, kept.
Diluted EPS: $0.93.
The bonds are tested after the options, against the running figure of $0.938, not against basic EPS. Since 2020, the if-converted method is required for convertible debt, and the earlier option to avoid it for instruments that could be settled in cash was removed (Financial Accounting Standards Board, 2020).
Presentation and a Sentence for Investors
Deepwell presents basic EPS of $0.97 and diluted EPS of $0.93 on the face of the income statement, with a note reconciling the numerators and denominators and naming the warrants as excluded because they are antidilutive.
For investors: if every option holder and bondholder converted, each share would have earned about four cents less this year, and the warrants would begin to matter only if the share price rose above $24.
References
Financial Accounting Standards Board. (1997). Earnings per share (Statement of Financial Accounting Standards No. 128). https://www.fasb.org
Financial Accounting Standards Board. (2020). Debt, debt with conversion and other options (Subtopic 470-20) and derivatives and hedging, contracts in entity's own equity (Subtopic 815-40): Accounting for convertible instruments and contracts in an entity's own equity (Accounting Standards Update No. 2020-06). https://www.fasb.org
Kieso, D. E., Weygandt, J. J., & Warfield, T. D. (2019). Intermediate accounting (17th ed.). Wiley.
The Purdue Global AC301 Unit 10 instructions
The last AC301 unit asks for basic and diluted earnings per share from a year of share changes and a set of potentially dilutive securities. List the facts first. Weight the shares outstanding by months, restating periods before a split or stock dividend as if it had always applied, and counting issues and buybacks from their dates. Subtract preferred dividends that are cumulative or declared from net income for the numerator. Compute basic EPS. For each potential dilutor, compute its effect per incremental share: the treasury stock method for options and warrants, the if-converted method for convertible debt or preferred stock. Rank them and add them one at a time, keeping each only if it lowers the running figure. Exclude antidilutive securities and say why. Present both figures with a note. Cite SFAS 128 and the 2020 convertible update in APA 7.
How this AC301 Unit 10 example is built
The sample opens with nine facts, from net income of $2,400,000 to warrants at $24. The weighting section restates the first two periods for the split and lists three weighted amounts that total 2,270,000; the highlighted sentence explains why the split reaches back to January while the buyback counts only from October. Basic EPS divides $2,200,000 by that figure. The ranking section computes the options' 75,000 net shares at zero income effect, the bonds' $0.79 per share after 21 percent tax, and the warrants as antidilutive. A step-by-step section adds the options to reach $0.938, then the bonds to reach $0.927, and notes the 2020 rule requiring the if-converted method. The presentation section names the excluded warrants in the note, and a plain sentence tells investors what full conversion would cost each share.
Reading the AC301 Unit 10 grading rubric
The weighted average share count earns a large share of the AC301 points in this problem, since both EPS figures depend on it. Graders check that the split is applied retroactively and that issues and buybacks are weighted from their dates. The numerator must deduct preferred dividends correctly. Each dilutive security is checked for the right method and its incremental effect. Ranking and sequential testing earn separate credit, and testing each security against basic EPS alone loses points. Correct exclusion of antidilutive warrants, with a reason, is expected. Presentation of both figures and a reconciling note shows knowledge of disclosure. A plain explanation for investors shows the student can communicate the result. Setting the dilution test out one security at a time lets the grader follow the running figure. In APA 7, SFAS 128, the 2020 convertible update and the textbook support the method for a Purdue Global grader.
AC301 Unit 10 help from the desk
The share weighting is where most earnings per share answers go wrong: students apply the split only from July, or restate the buyback for the split as well. Others use year-end shares instead of a weighted average. Preferred dividends are left out of the numerator, or deducted only if declared when the stock is cumulative. Options are counted at full shares without the treasury stock buyback. Convertible bond interest is added back before tax. Securities are tested in the order listed instead of ranked. Warrants above market price are included. Some papers stop at basic EPS. If your problem includes a stock dividend, contingently issuable shares or convertible preferred stock, a writer can weight the shares and test each security for your section's figures.
Get an AC301 Unit 10 example written to your instructions
Timing drives the denominator, so dates matter most: every share issuance, split and buyback the Unit 10 problem lists, plus net income, preferred dividend terms, each option, warrant or convertible, and the rubric. Weighting, ranking and both EPS figures come back within 24-48h, interpretive sentence included, and the first custom sample costs nothing. The paper above is an original model document written by our desk, not a submitted student paper and not an official Purdue University Global document.
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AC301 Unit 10 questions, answered
Why are shares before the split doubled when the split happened in July?
Because a stock split changes the number of shares without changing anyone's ownership or the company's resources. Restating all earlier periods as if the split had always been in effect keeps the per-share figures comparable across the year and with prior years. Stock dividends are treated the same way. The sample marks the restatement in the table heading so the adjustment is visible.
How does the treasury stock method work for the options?
It assumes the options are exercised at the start of the year and the proceeds are used to buy back shares at the average market price. Here 300,000 options at 15 bring in 4,500,000, which repurchases 225,000 shares at 20. The net 75,000 shares are added to the denominator. Options with an exercise price above the average market price are antidilutive and left out.
What if the preferred stock were convertible?
Then it would join the ranking. Under the if-converted method, its dividends would be added back to the numerator and the conversion shares added to the denominator, and its incremental effect per share would place it in the sequence. If that effect exceeded the running diluted figure it would be excluded as antidilutive. The sample adds it when the problem states a conversion feature.
Where can I find a free AC301 Unit 10 sample paper?
This page gives a complete AC301 Unit 10 earnings per share problem for a composite geothermal installer, with weighted shares, basic EPS of $0.97, ranked dilutive securities, diluted EPS of $0.93 and APA 7 references.
Why are the warrants left out of diluted EPS in AC301 Unit 10?
Their $24 exercise price is above the $20 average market price, so assumed exercise would buy back more shares than it issues. That would raise EPS, which makes the warrants antidilutive.