ACC423 WileyPlus

w2_4.xlsx

Question

1

a b

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Question 1

(Sto

c

k Split and Stock Dividend) The common stock of Warner Inc. is currently selling at

$

110 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $10; book value is $70 per share. Five million shares are issued and outstanding. a. How much is the debit to retained earnings if the board votes a 2-for-1 stock split? $
b. Prepare the necessary journal entries if the board votes a 100% stock dividend.

Question 2

Ch. 16 EPS with Convertible Bonds, various Situations 16-22B c

Assume the same facts as assumed for part (a), except that 100 of the 500 bonds were (EPS with Convertible Bonds, Various Situations) At the beginning of 2009, Florida actually converted on July 1, 2009. Rock Industries had 25,000 shares of common stock issued and outstanding and 500 $1,000, 6% bonds, each convertible into 10 shares of common stock. During 2009, Florida Revenues $156,500 click to see cells Rock had revenues of $156,500 and expenses other than interest and taxes of

$104,000

. Expense Assume that the tax rate is 40%. None of the bonds was converted

or redeemed. Other than Interest

$104,000
Bond Interest $15,000 (LO 7) Instructions

Bond Interest

$12,000

1

3

1,000

income before income taxes $

25,500 a

Compute diluted earnings per share for 2009. Income taxes 10,200 Nwet income $15,300 Revenues

$ 156,500.00 Expenses Other than interest $ 104,000.00 Diluted earnings per share 1.05 Bond Interest

$

30,000

.00 $ 134,000.00 Earnings $ 31,500.00 Income before income taxes $ 22,500.00 Shares outstanding

$ 30,000.00
Income taxes

$ 9,000.00 Net Income 13,500 Diluted earnings per sahre

1.05

Earnings $ 31,500.00
Shares outstanding $ 30,000.00

b

Assume the same facts as those assumed for part (a), except that the 500 bonds were issued on September 1, 2009 (rather than in a prior year), and none have been converted or redeemed.

Revenues $ 156,500.00
Expenses

Other than interest $104,000
Bond Interest

$ 10,000.00 $114,000.00 Income before income taxes

$ 42,500.00 Income taxes

$ 17,000.00 Net Income 25,500
Diluted earnings per sahre

$1.18

Earnings $ 31,500.00

Shares outstanding

$ 26,666.67

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3

30,000

$

(EPS: Simple Capital Structure)
On January 1, 2010, Bailey Industries had stock outstanding as follows.
6% Cumulative preferred stock $100 par value
issued and outstanding 10,000 shares	$1,000,000
Common stock, $10 par value, issued and
outstanding 200,000 shares	2,000,000
To acquire the net assets of three smaller companies, Bailey authorized the issuance of an additional
170,000 common shares. The acquisitions took place as follows.
Date of Acquisition	Shares Issued
Company A April 1, 2010	60,000
Company B July 1, 2010	80,000
Company C October 1, 2010
On May 14, 2010, Bailey realized a $90,000 (before taxes) insurance gain on the expropriation of
investments originally purchased in 2000.
On December 31, 2010, Bailey recorded net income of $300,000 before tax and exclusive of the
gain.
Assuming a 40% tax rate, compute the earnings per share data that should appear on the financial
statements of Bailey Industries as of December 31, 2010. Assume that the expropriation is
extraordinary. (Round answer to 2 decimal places, e.g. 0.25.)