Assignment 6 Spring 2015

I. At the beginning of 20x1, Metro showed the following amounts in the stockholders? equity section of its balance sheet:

Stockholders? Equity:

Common stock, $1 par, 500,000 shares authorized,

382,000 shares issued and outstanding $ 382,000

PCIEP 4,202,000

Retained earnings 2,704,600 Total stockholders? equity $7,288,600

The transactions relating to stockholders? equity accounts during the year are as follows:

1/3 Declared a dividend of $1 per share to stockholders of record on 1/31, payable on 2/15.

2/15 Paid the cash dividend declared on 1/3.

4/12 Metro purchased 6,000 shares of its own common stock at a price of $40 per share.

5/9 Reissued 4,000 shares of the treasury stock at a price of $44 per share.

6/1 Declared a 5% stock dividend to stockholders of record at 6/15, to be distributed on 6/30. The market price of the stock was $42 per share on 6/1 and $45 per share on 6/15.

6/30 Distributed the stock dividend declared on 6/1.

Required:

Prepare in general journal form the entries to record the above transactions.

Prepare the stockholders? equity section of the balance sheet at 12/31/x1.

II. Woolery, Inc. had 50,000 shares of common stock outstanding at January 1, 20x1. On March 31, 20x1, an additional 12,000 shares were sold for cash. Woolery also had $4,000,000 of 6% convertible bonds outstanding throughout the year. The bonds are convertible into 40,000 shares of common stock. Net income for the year was $350,000. The tax rate is 35%.

Required: Compute basic and diluted earnings per share for the year ended December 31, 20x1.

III. Metro Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussions with their investment bankers, it was determined that to help the sale of bonds, detachable stock warrants should be issued at the rate of one warrant for each 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. The bonds with stock warrants sold in the market at issuance for $152,000.

Each stock warrant can purchase two shares of Metro?s $2 par common stock at $40 per share.

What entry should be made at the time of the issuance of the bonds and warrants?

What entry should be made if all stock warrants are exercised when the stock price is $50 per share.

See Assignment 6 - SP 15(1).doc

Assignment 6 Spring 2015 I. At the beginning of 20x1, Metro showed the following amounts in the stockholders' equity section of its balance sheet: Stockholders' Equity: Common stock, $1 par, 500,000 shares authorized, 382,000 shares issued and outstanding PCIEP Retained earnings 2,704,600 Total stockholders' equity $7,288,600 $ 382,000 4,202,000 The transactions relating to stockholders' equity accounts during the year are as follows: 1/3 Declared a dividend of $1 per share to stockholders of record on 1/31, payable on 2/15. 2/15 Paid the cash dividend declared on 1/3. 4/12 Metro purchased 6,000 shares of its own common stock at a price of $40 per share. 5/9 Reissued 4,000 shares of the treasury stock at a price of $44 per share. 6/1 Declared a 5% stock dividend to stockholders of record at 6/15, to be distributed on 6/30. The market price of the stock was $42 per share on 6/1 and $45 per share on 6/15. 6/30 Distributed the stock dividend declared on 6/1. Required: 1) Prepare in general journal form the entries to record the above transactions. 2) Prepare the stockholders' equity section of the balance sheet at 12/31/x1. II. Woolery, Inc. had 50,000 shares of common stock outstanding at January 1, 20x1. On March 31, 20x1, an additional 12,000 shares were sold for cash. Woolery also had $4,000,000 of 6% convertible bonds outstanding throughout the year. The bonds are convertible into 40,000 shares of common stock. Net income for the year was $350,000. The tax rate is 35%. Required: Compute basic and diluted earnings per share for the year ended December 31, 20x1. III. Metro Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussions with their investment bankers, it was determined that to help the sale of bonds, detachable stock warrants should be issued at the rate of one warrant for each 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. The bonds with stock warrants sold in the market at issuance for $152,000. Each stock warrant can purchase two shares of Metro's $2 par common stock at $40 per share. 1) What entry should be made at the time of the issuance of the bonds and warrants? 2) What entry should be made if all stock warrants are exercised when the stock price is $50 per share