Accounting 2 Problems
BE16-1 Archer Inc. issued $4,000,000 par value, 7% convertible bonds at 99 for cash. If the bonds not included the conversion feature, they would have sold for 95. Prepare the journal entry to record the issuance of the bonds.
BE16-6 On January 1, 2014, Barwood Corporation granted 5,000 options to executives. Each option entitles the holder to purchase one share of Barwood’s $5 par value common stock at $50 per share at any time during the next 5 years. The market price of the stock is $65 per share on the date of grant. The fair value of the options at the grant date is $150,000. The period of benefit is 2 years. Prepare Barwood’s journal entry for January 1, 2014, and December 31, 2014 and 2015.
BE16-11 Tomba Corporation had 300,000 shares of common stock outstanding on January 1, 2014. On May 1, 2014, Douglas issued 60,000 shares. On July 1, Douglas purchased 10,000 treasury shares, which were reissued on October 1. Compute Douglas’s weighted-average number of shares outstanding for 2014.
EX16-1 (Issuance and Conversion of Bonds) For each of the unrelated transactions described below, present the entry(ies) required to record each transaction.
1.Grand Corp. issued $20,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95. Expenses of issuing the bonds were $70,000.
2.Hoosier Company issued $20,000,000 par value 10% bonds at 98. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $4.
3.Suppose Sepracor, Inc. called its convertible debt in 2014. Assume the following related to the transaction. The 11%, $10,000,000 par value bonds were converted into 1,000,000 shares of $1 par value common stock on July 1, 2014. On July 1, there was $55,000 of unamortized discount applicable to the bonds, and the company paid an additional $75,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.
EX16-7 (Issuance of Bonds with Warrants) Illiad Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $136,000, and the value of the warrants in the market is $24,000. Te bonds sold in the market at issuance for $152,000.
Instructions
Make the necessary journal entries for:
(a)December 31, 2015.
(b)January 1, 2016.
(c)March 31, 2016.
(d)June 30, 2016.
EX16-14 (Accounting for Restricted Stock) Tweedie Company issues 10,000 shares of restricted stock to its CFO, Mary Tokar, on January 1, 2014. The stock has a fair value of $500,000 on this date. The service period related to this restricted stock us 5 years. Vesting occurs if Tokar stays with the company until December 31, 2018. The par value of the stock is $10. At December 31, 2014, the fair value of the stock is $450,000.
Instructions
(a)Prepare the journal entries to record the restricted stock on January 1, 2014 (the date of the grant), and December 31, 2015.
(b)On July 25, 2018, Tokar leaves the company. Prepare the journal entry (if any) to account for this forfeiture.
EX16-16 (EPS:Simple Capital Structure On January 1, 2015, Wilke Corp. had 480,000 shares of common stock outstanding. During 2015, it had the following transactions that affected the common stock account.
February 1 Issued 120,000 shares
March 1 Issued a 10% stock dividend
May 1 Acquired 100,000 shares of treasury stock
June 1 Issued a 3-for-1 stock split
October 1 Reissued 60,000 shares of treasury stock
Instructions
(a)Determine the weighted-average number of shares outstanding as of December 31, 2015.
(b)Assume the Wilke Corp. earned net income of $3,456,000 during 2015. In addition, it had 100,000 shares of 9% par nonconvertible, noncumulative preferred stock outstanding for the entire year. Because of liquidity consideration, however, the company did not declare and pay a preferred dividend in 2015. Compute earnings per share for 2015, using the weighted-average number of shares determined in part (a).
(c)Assume the same facts in part (b), expect that the preferred stock was cumulative. Compute earnings per share for 2015.
(d)Assume the same facts in part (b), except that the net income included an extraordinary gain of $864,000 and a loss from discontinued operations of $432,000. Both items are net of applicable income taxes. Compute earnings per share for 2015.
P16-5 (EPS with Complex Capital Structure) Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company, is currently preparing the calculation for basic an diluted earnings per share and the related disclosure for Fitzgerald’s financial statements. Below is selected financial information for the fiscal year ended June 30, 2014.
FITZGERALD PHARMACEUTICAL INDUSTRIES
SELECTED BALANCE SHEET INFORMATION
JUNE 30, 2014
Long-term debt
Note ;payable, 10% 1,000,000
8% convertible bonds payable 5,000,000
10% bonds payable 6,000,000
Total long-term debt 12,000,000
Shareholder’s equity
Preferred stock, 6%cumulative, $50 par value,
100,000 share authorized, 25,000 shares issued and
outstanding 1,250,000
Common stock, $1 par, 10,000 shares authorized,
1,000,000 shares issued and outstanding 1,000,000
Additional paid-in capital 4,000,000
Retained earnings 6,000,000
Total shareholder’s equity 12,250,000
The following transactions have also occurred at Fitzgerald
1.Options were granted on July 1, 2013, to purchase 200,000 shares at $15 per share. Although no options were exercised during fiscal year 2014, the average price per common share during fiscal year 2014 was $20 per share.
2 Each bond issued was at face value. The 8% convertible bonds will convert into common stock at 50 shares per $1,000 bond. The bonds are exercisable after 5 years and were issued in fiscal year 2013.
3.The preferred stock was issued in 2013.
4.There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2014.
5.The 1,000,000 shares of common stock were outstanding for the entire 2014 fiscal year.
6.Net income for fiscal year 2014 was $1,500,000, and the average income tax rate is 40%.
Instructions
For the fiscal year ended June 30, 2014, calculate the following for Fitzgerald Pharmaceutical Industries.
(a)Basic earnings per share.
(b)Diluted earnings per share.
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