Carribean Culture

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1. Convertible bonds and stock warrants.
For each of the unrelated transactions described below, present the entry(ies) required to record the bond transactions.

1.On August 1, 2011, Lane Corporation called its 10% convertible bonds for conversion. The $8,000,000 par bonds were converted into 320,000 shares of $20 par common stock. On August 1, there was $700,000 of unamortized premium applicable to the bonds. The fair market value of the common stock was $20 per share. Ignore all interest payments.

DR

Bonds Payable 8,000,000

Premium on Bonds Payable700,000

CR

Common Stock6,400,000

APIC2,300,000

2.Packard, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $3,000,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94.

DR

Cash2,910,000

Bond Discount90,000

CR

Bonds Payable3,000,000

3.Gomez Company issues $5,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $4,935,000 and the value of the warrants is $315,000. The bonds with the warrants sold at 101.

DR

Cash5,050,000

Discount on Bonds Payable253,000 (5,000,000 – 4,747,000)

CR

Bonds Payable5,000,000

PIC – Stock Warrants303,000
2. Basic and diluted EPS.

Assume that the following data relative to Kane Company for 2010 is available:

Net Income$2,100,000

Transactions in Common Shares ChangeCumulative
Jan. 1, 2010, Beginning number700,000
Mar. 1, 2010, Purchase of treasury shares(60,000)640,000
June 1, 2010, Stock split 2-1640,0001,280,000
Nov. 1, 2010, Issuance of shares120,0001,400,000

8% Cumulative Convertible Preferred Stock
Sold at par, convertible into 200,000 shares of common
(adjusted for split).$1,000,000

Stock Options
Exercisable at the option price of $25 per share. Average
market price in 2010, $30 (market price and option price
adjusted for split).60,000 shares

Instructions
(a)Compute the basic earnings per share for 2010. (Round to the nearest penny.) (Check your answer: EPS = $1.53) (b)Compute the diluted earnings per share for 2010. (Round to the nearest penny.) (Check your answer: EPS = $1.37)

A.
|Date |Change in Shares |shares outstanding | Fraction of Yr |2/1 split |weighted avg shares | |1-Jan | | 700,000.00 |0.08333333 |2 | 116,666.67 | | |1-Mar |-60000 | 56,666.67 |0.16666667 |2 | 18,888.89 | | |1-Jun |640000 | 658,888.89 |0.5 | | 329,444.44 | | |1-Nov |120000 | 449,444.44 |0.83333333 | | 374,537.04 | | | | | | | | | | | | | | | | | | | | | |60000 | | | | | | | |25 | | | | | | | |1500000 |preferred dividends | | | | | | | |...
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