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.
Bonds Payable 8,000,000
Premium on Bonds Payable700,000
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.
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.
Discount on Bonds Payable253,000 (5,000,000 – 4,747,000)
PIC – Stock Warrants303,000
2. Basic and diluted EPS.
Assume that the following data relative to Kane Company for 2010 is available:
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
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
(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)
|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 | | | | | | | |...