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HW-1170 Finance Exercise
EXERCISE 15-4
Fogelberg Corporation is a regional company which is an SEC registrant. The corporation’s securities are thinly traded on NASDAQ (National Association of Securities Dealers Quotes). Fogelberg has issued 11,210 units. Each unit consists of a $561 par, 12% subordinated debenture and 11 shares of $6 par common stock. The investment banker has retained 448 units as the underwriting fee. The other 10,762 units were sold to outside investors for cash at $953 per unit. Prior to this sale the 2-week ask price of common stock was $45 per share. Twelve percent is a reasonable market yield for the debentures, and therefore the par value of the bonds is equal to the fair value.
Prepare the journal entry to record Fogelberg’s transaction, under the following conditions. (Round answers to 0 decimal places, e.g. $38,487. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(1) Employing the incremental method.
(2) Employing the proportional method, assuming the recent price quote on the common stock reflects fair value.
EXERCISE 15-8
Weisberg Corporation has 10,340 shares of $100 par value, 6% preferred stock and 50,800 shares of $9 par value common stock outstanding at December 31, 2012.
Answer the questions in each of the following independent situations.
(a) If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2009, what are the dividends in arrears that should be reported on the December 31, 2012, balance sheet?
The dividends in arrears to be reported on the December 31, 2012
$?
How should these dividends be reported?
The cumulative dividend is REPORTED / NOT REPORTED as a liability.
(b) If the preferred stock is convertible into 7 shares of $9 par value common stock and 3,700 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value? (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(c) If the preferred stock was issued at $107 per share, how should the preferred stock be reported in the stockholders’ equity section?
EXERCISE 15-5
The following data were taken from the balance sheet accounts of Wickham Corporation on December 31, 2012.
Current assets $545,000
Debt investments 633,000
Common stock (par value $10) 635,000
Paid-in capital in excess of par—common stock 156,000
Retained earnings 844,000
Prepare the required journal entries for the following unrelated items. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(a) A 5% stock dividend is (1) declared and (2) distributed at a time when the market price is $33 per share.
(b) The par value of the capital stock is reduced to $2 with a 5-for-1 stock split.
(c) A dividend is declared January 5, 2013, and paid January 25, 2013, in bonds held as an investment. The bonds have a book value of $93,380 and a fair value of $134,380.
Elizabeth Company reported the following amounts in the stockholders’ equity section of its December 31, 2012, balance sheet.
Preferred stock, 12%, $100 par (10,000 shares authorized, 2,420 shares issued) $242,000
Common stock, $5 par (112,650 shares authorized, 22,530 shares issued) 112,650
Additional paid-in capital 133,100
Retained earnings 456,200
Total $943,950
During 2013, Elizabeth took part in the following transactions concerning stockholders’ equity.
1. Paid the annual 2012 $12 per share dividend on preferred stock and a $3 per share dividend on common stock. These dividends had been declared on December 31, 2012.
2. Purchased 2,900 shares of its own outstanding common stock for $40 per share. Elizabeth uses the cost method.
3. Reissued 680 treasury shares for land valued at $31,920.
4. Issued 550 shares of preferred stock at $108 per share.
5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share.
6. Issued the stock dividend.
7. Declared the annual 2013 $12 per share dividend on preferred stock and the $3 per share dividend on common stock. These dividends are payable in 2014.
(a) Prepare journal entries to record the transactions described above.
(b) Prepare the December 31, 2013, stockholders’ equity section. Assume 2013 net income was $338,800.
EXERCISE 15-22
Martinez Company’s ledger shows the following balances on December 31, 2012.
Preferred Stock (4%; $10 par value, outstanding 20,240 shares) $ 202,400
Common Stock ($100 par value, outstanding 30,840 shares) 3,084,000
Retained Earnings 638,600
Assuming that the directors decide to declare total dividends in the amount of $271,500, determine how much each class of stock should receive under each of the conditions stated below. One year‘s dividends are in arrears on the preferred stock.
(a) The preferred stock is cumulative and fully participating.
(b) The preferred stock is noncumulative and nonparticipating.
(c) The preferred stock is noncumulative and is participating in distributions in excess of a 5% dividend rate on the common stock.
EXERCISE 16-2
Schuss Inc. issued $4,849,800 of 9%, 10-year convertible bonds on June 1, 2012, at 96 plus accrued interest. The bonds were dated April 1, 2012, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis.
On April 1, 2013, $1,616,600 of these bonds were converted into 38,900 shares of $16 par value common stock. Accrued interest was paid in cash at the time of conversion.
(a) Prepare the entry to record the interest expense at October 1, 2012. Assume that accrued interest payable was credited when the bonds were issued.
(b) Prepare the entry to record the conversion on April 1, 2013. (The book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.
EXERCISE 16-6
On January 1, 2011, Trillini Corporation issued $4,390,000 of 10-year, 9% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into 9 shares of Trillini Corporation $101 par value common stock after December 31, 2012.
On January 1, 2013, $878,000 of debentures are converted into common stock, which is then selling at $111. An additional $878,000 of debentures are converted on March 31, 2013. The market price of the common stock is then $116. Accrued interest at March 31 will be paid on the next interest date.
Bond premium is amortized on a straight-line basis.
Make the necessary journal entries for:
(a) December 31, 2012. (c) March 31, 2013.
(b) January 1, 2013. (d) June 30, 2013.
Record the conversions using the book value method.
EXERCISE 16-8
On September 1, 2012, Jacob Company sold at 104 (plus accrued interest) 7,440 of its 8%, 10-year, $1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachable warrants. Each warrant was for one share of common stock at a specified option price of $16 per share. Shortly after issuance, the warrants were quoted on the market for $3 each. No fair value can be determined for the Jacob Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of $37,600 were incurred.
Prepare in general journal format the entry to record the issuance of the bonds.
EXERCISE 16-19
A portion of the statement of income and retained earnings of Pierson Inc. for the current year follows.
Income before extraordinary item $15,470,000
Extraordinary loss, net of applicable income tax (Note 1) 1,405,000
Net income 14,065,000
Retained earnings at the beginning of the year 83,380,000
=97,445,000
Dividends declared:
On preferred stock—$6.00 per share $312,000
On common stock—$1.75 per share 14,120,000 14,432,000
Retained earnings at the end of the year $83,013,000
Note 1. During the year, Pierson Inc. suffered a major casualty loss of $1,405,000 after applicable income tax reduction of $1,230,000.
At the end of the current year, Pierson Inc. has outstanding 8,291,000 shares of $10 par common stock and 52,000 shares of 6% preferred.
On April 1 of the current year, Pierson Inc. issued 1,177,000 shares of common stock for $33 per share to help finance the casualty.
Compute the earnings per share on common stock for the current year as it should be reported to stockholders.
EXERCISE 16-25
On January 1, 2012, Lindsey Company issued 10-year, $3,284,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 17 shares of Lindsey common stock. Lindsey’s net income in 2012 was $295,000, and its tax rate was 40%. The company had 102,000 shares of common stock outstanding throughout 2012. None of the bonds were converted in 2012.
(a) Compute diluted earnings per share for 2012. (Round answer to 2 decimal places, e.g. $2.55.)
Diluted earnings per share
$
(b) Compute diluted earnings per share for 2012, assuming the same facts as above, except that $1,020,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 10 shares of Lindsey common stock. (Round answer to 2 decimal places, e.g. $2.55.)
Diluted earnings per share
$
Answer will be sent by email as attachment.
Fogelberg Corporation is a regional company which is an SEC registrant. The corporation’s securities are thinly traded on NASDAQ (National Association of Securities Dealers Quotes). Fogelberg has issued 11,210 units. Each unit consists of a $561 par, 12% subordinated debenture and 11 shares of $6 par common stock. The investment banker has retained 448 units as the underwriting fee. The other 10,762 units were sold to outside investors for cash at $953 per unit. Prior to this sale the 2-week ask price of common stock was $45 per share. Twelve percent is a reasonable market yield for the debentures, and therefore the par value of the bonds is equal to the fair value.
Prepare the journal entry to record Fogelberg’s transaction, under the following conditions. (Round answers to 0 decimal places, e.g. $38,487. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(1) Employing the incremental method.
(2) Employing the proportional method, assuming the recent price quote on the common stock reflects fair value.
EXERCISE 15-8
Weisberg Corporation has 10,340 shares of $100 par value, 6% preferred stock and 50,800 shares of $9 par value common stock outstanding at December 31, 2012.
Answer the questions in each of the following independent situations.
(a) If the preferred stock is cumulative and dividends were last paid on the preferred stock on December 31, 2009, what are the dividends in arrears that should be reported on the December 31, 2012, balance sheet?
The dividends in arrears to be reported on the December 31, 2012
$?
How should these dividends be reported?
The cumulative dividend is REPORTED / NOT REPORTED as a liability.
(b) If the preferred stock is convertible into 7 shares of $9 par value common stock and 3,700 shares are converted, what entry is required for the conversion assuming the preferred stock was issued at par value? (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(c) If the preferred stock was issued at $107 per share, how should the preferred stock be reported in the stockholders’ equity section?
EXERCISE 15-5
The following data were taken from the balance sheet accounts of Wickham Corporation on December 31, 2012.
Current assets $545,000
Debt investments 633,000
Common stock (par value $10) 635,000
Paid-in capital in excess of par—common stock 156,000
Retained earnings 844,000
Prepare the required journal entries for the following unrelated items. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
(a) A 5% stock dividend is (1) declared and (2) distributed at a time when the market price is $33 per share.
(b) The par value of the capital stock is reduced to $2 with a 5-for-1 stock split.
(c) A dividend is declared January 5, 2013, and paid January 25, 2013, in bonds held as an investment. The bonds have a book value of $93,380 and a fair value of $134,380.
Elizabeth Company reported the following amounts in the stockholders’ equity section of its December 31, 2012, balance sheet.
Preferred stock, 12%, $100 par (10,000 shares authorized, 2,420 shares issued) $242,000
Common stock, $5 par (112,650 shares authorized, 22,530 shares issued) 112,650
Additional paid-in capital 133,100
Retained earnings 456,200
Total $943,950
During 2013, Elizabeth took part in the following transactions concerning stockholders’ equity.
1. Paid the annual 2012 $12 per share dividend on preferred stock and a $3 per share dividend on common stock. These dividends had been declared on December 31, 2012.
2. Purchased 2,900 shares of its own outstanding common stock for $40 per share. Elizabeth uses the cost method.
3. Reissued 680 treasury shares for land valued at $31,920.
4. Issued 550 shares of preferred stock at $108 per share.
5. Declared a 10% stock dividend on the outstanding common stock when the stock is selling for $45 per share.
6. Issued the stock dividend.
7. Declared the annual 2013 $12 per share dividend on preferred stock and the $3 per share dividend on common stock. These dividends are payable in 2014.
(a) Prepare journal entries to record the transactions described above.
(b) Prepare the December 31, 2013, stockholders’ equity section. Assume 2013 net income was $338,800.
EXERCISE 15-22
Martinez Company’s ledger shows the following balances on December 31, 2012.
Preferred Stock (4%; $10 par value, outstanding 20,240 shares) $ 202,400
Common Stock ($100 par value, outstanding 30,840 shares) 3,084,000
Retained Earnings 638,600
Assuming that the directors decide to declare total dividends in the amount of $271,500, determine how much each class of stock should receive under each of the conditions stated below. One year‘s dividends are in arrears on the preferred stock.
(a) The preferred stock is cumulative and fully participating.
(b) The preferred stock is noncumulative and nonparticipating.
(c) The preferred stock is noncumulative and is participating in distributions in excess of a 5% dividend rate on the common stock.
EXERCISE 16-2
Schuss Inc. issued $4,849,800 of 9%, 10-year convertible bonds on June 1, 2012, at 96 plus accrued interest. The bonds were dated April 1, 2012, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis.
On April 1, 2013, $1,616,600 of these bonds were converted into 38,900 shares of $16 par value common stock. Accrued interest was paid in cash at the time of conversion.
(a) Prepare the entry to record the interest expense at October 1, 2012. Assume that accrued interest payable was credited when the bonds were issued.
(b) Prepare the entry to record the conversion on April 1, 2013. (The book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.
EXERCISE 16-6
On January 1, 2011, Trillini Corporation issued $4,390,000 of 10-year, 9% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into 9 shares of Trillini Corporation $101 par value common stock after December 31, 2012.
On January 1, 2013, $878,000 of debentures are converted into common stock, which is then selling at $111. An additional $878,000 of debentures are converted on March 31, 2013. The market price of the common stock is then $116. Accrued interest at March 31 will be paid on the next interest date.
Bond premium is amortized on a straight-line basis.
Make the necessary journal entries for:
(a) December 31, 2012. (c) March 31, 2013.
(b) January 1, 2013. (d) June 30, 2013.
Record the conversions using the book value method.
EXERCISE 16-8
On September 1, 2012, Jacob Company sold at 104 (plus accrued interest) 7,440 of its 8%, 10-year, $1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachable warrants. Each warrant was for one share of common stock at a specified option price of $16 per share. Shortly after issuance, the warrants were quoted on the market for $3 each. No fair value can be determined for the Jacob Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of $37,600 were incurred.
Prepare in general journal format the entry to record the issuance of the bonds.
EXERCISE 16-19
A portion of the statement of income and retained earnings of Pierson Inc. for the current year follows.
Income before extraordinary item $15,470,000
Extraordinary loss, net of applicable income tax (Note 1) 1,405,000
Net income 14,065,000
Retained earnings at the beginning of the year 83,380,000
=97,445,000
Dividends declared:
On preferred stock—$6.00 per share $312,000
On common stock—$1.75 per share 14,120,000 14,432,000
Retained earnings at the end of the year $83,013,000
Note 1. During the year, Pierson Inc. suffered a major casualty loss of $1,405,000 after applicable income tax reduction of $1,230,000.
At the end of the current year, Pierson Inc. has outstanding 8,291,000 shares of $10 par common stock and 52,000 shares of 6% preferred.
On April 1 of the current year, Pierson Inc. issued 1,177,000 shares of common stock for $33 per share to help finance the casualty.
Compute the earnings per share on common stock for the current year as it should be reported to stockholders.
EXERCISE 16-25
On January 1, 2012, Lindsey Company issued 10-year, $3,284,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 17 shares of Lindsey common stock. Lindsey’s net income in 2012 was $295,000, and its tax rate was 40%. The company had 102,000 shares of common stock outstanding throughout 2012. None of the bonds were converted in 2012.
(a) Compute diluted earnings per share for 2012. (Round answer to 2 decimal places, e.g. $2.55.)
Diluted earnings per share
$
(b) Compute diluted earnings per share for 2012, assuming the same facts as above, except that $1,020,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 10 shares of Lindsey common stock. (Round answer to 2 decimal places, e.g. $2.55.)
Diluted earnings per share
$
Answer will be sent by email as attachment.
