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Assignment-Ch 14, 18, 19 Summer 2013 I. On March 1 20x2, Pyne Furniture Co. issued $700,000 of 10% bonds to yield 8%. Interest is payable semiannually on February 28 and August 31. The bonds mature in 10 years. Pyne is a calendar-year corporation. Required: 1. Determine the issue price of the bonds. 2. Prepare an amortization table through the first 5 years. 3. Prepare the journal entries to record bond-related transactions as of the following dates: (a) March 20x2 (b) August 31, 20x2 (c) December 31, 20x2 (d) February 28, 20x3 II. Metro Company reported the following amounts in the stockholders' equity section of its balance sheet on 12/31/x1, first year of operations: Preferred stock, 10%, $100 par (10,000 shares Authorized, 2,000 shares issued) Common stock, $5 par (100,000 shares authorized, 20,000 shares issued) Paid-in Capital in Excess of Par - Common Retained Earnings Total $200,000 100,000 125,000 450,000 $875,000 During 20x2 and 20x3, Metro took part in the following transactions concerning stockholders' equity. 1. Declared and paid the annual dividends of $50,000 for 20x2. The preferred stock is cumulative. Metro did not pay any dividend in 20x1. Divide the dividend between preferred stock and common stock, and make journal entries for each dividend. 2. Purchased 1,700 shares of its own outstanding common stock for $35 per share. Metro uses the cost method. 3. Reissued 700 treasury shares for land valued at $30,000. 4. Issued 500 shares of preferred stock at $106 per share. 5. Declared a 10% stock dividend on common stock when the stock is selling for $39 per share. 6. Issued the stock dividend. 7. Declared the annual dividends for 20x3: annual dividend on preferred stock and $1 per share dividend on common stock. These dividends are payable in 20x4. Prepare two separate journal entries; common and preferred dividend each. Required: (a) Prepare journal entries for these transactions. (b) Prepare the 12/31/03, stockholders' equity section. Assume 20x3 net income was $305,000 ($0 for 20x2). III. 2/1 3/1 5/1 6/1 10/1 On January 1, 20x1, Wilk Corp. had 480,000 shares of common stock outstanding. During 20x1, it had the following transactions that affected the common stock account. Issued 120,000 shares Declared and distributed a 10% stock dividend Acquired 100,000 shares of treasury stock Issued a 3-for-1 stock split Reissued 60,000 shares of treasury stock Wilke Corp. earned net income of $3,456,000 during 20x1. In addition, it had 100,000 of shares of 9%, $100 par nonconvertible, cumulative preferred stock outstanding for the entire year. Because of liquidity considerations, the company did not declare and pay a preferred dividend in 20x1. Compute EPS for 20x1. IV. Venz Company's net income for 20x1 is $50,000. The only potentially dilutive securities outstanding were 1,000 options issued during 20x0, each exercisable for one share at $6. None has been exercised, and 10,000 shares of common were outstanding during 20x1. The average market price of Venz's stock during 20x1 was $20. Compute diluted EPS for 20x1. Assignment-Ch 14, 18, 19 Summer 2013 I. On March 1 20x2, Pyne Furniture Co. issued $700,000 of 10% bonds to yield 8%. Interest is payable semiannually on February 28 and August 31. The bonds mature in 10 years. Pyne is a calendar-year corporation. Required: 1. Determine the issue price of the bonds. 2. Prepare an amortization table through the first 5 years. 3. Prepare the journal entries to record bond-related transactions as of the following dates: (a) March 20x2 (b) August 31, 20x2 (c) December 31, 20x2 (d) February 28, 20x3 II. Metro Company reported the following amounts in the stockholders' equity section of its balance sheet on 12/31/x1, first year of operations: Preferred stock, 10%, $100 par (10,000 shares Authorized, 2,000 shares issued) Common stock, $5 par (100,000 shares authorized, 20,000 shares issued) Paid-in Capital in Excess of Par - Common Retained Earnings Total $200,000 100,000 125,000 450,000 $875,000 During 20x2 and 20x3, Metro took part in the following transactions concerning stockholders' equity. 1. Declared and paid the annual dividends of $50,000 for 20x2. The preferred stock is cumulative. Metro did not pay any dividend in 20x1. Divide the dividend between preferred stock and common stock, and make journal entries for each dividend. 2. Purchased 1,700 shares of its own outstanding common stock for $35 per share. Metro uses the cost method. 3. Reissued 700 treasury shares for land valued at $30,000. 4. Issued 500 shares of preferred stock at $106 per share. 5. Declared a 10% stock dividend on common stock when the stock is selling for $39 per share. 6. Issued the stock dividend. 7. Declared the annual dividends for 20x3: annual dividend on preferred stock and $1 per share dividend on common stock. These dividends are payable in 20x4. Prepare two separate journal entries; common and preferred dividend each. Required: (a) Prepare journal entries for these transactions. (b) Prepare the 12/31/03, stockholders' equity section. Assume 20x3 net income was $305,000 ($0 for 20x2). III. 2/1 3/1 5/1 6/1 10/1 On January 1, 20x1, Wilk Corp. had 480,000 shares of common stock outstanding. During 20x1, it had the following transactions that affected the common stock account. Issued 120,000 shares Declared and distributed a 10% stock dividend Acquired 100,000 shares of treasury stock Issued a 3-for-1 stock split Reissued 60,000 shares of treasury stock Wilke Corp. earned net income of $3,456,000 during 20x1. In addition, it had 100,000 of shares of 9%, $100 par nonconvertible, cumulative preferred stock outstanding for the entire year. Because of liquidity considerations, the company did not declare and pay a preferred dividend in 20x1. Compute EPS for 20x1. Solution: Computation of the Earning per share for 20X1 Calculate the weighted average of shares outstanding in the common stock account Weighted average of Type of shares Weight shares 480,000 shares of common stock 5/12 480,000*5/12 = 200,000 120,000 shares 4/12 120,000*4/12 = 40,000 Acquired 100,000 shares of treasury stock (to be deducted) Issue of 3-for-1 stock split(480,000 + 120,000100,000) *3 Reissued 60,000 shares of treasury stock 8/12 100,000*8/12 = 66,667 7/12 500,000 * 3 = 15,00,000 3/12 60,000*3/12 = 15,000 100,000 shares 9%, nonconvertible, cumulative preferred stock 12/12 Total no. of weighted average of shares 100,000 200,000 +40,000 +66,667 + 15,00,000 + 15,000 + 100,000= 19,21,667 EPS = (Net Income - Preference dividend) / Total no. of weighted average of shares Where as (Net Income - Preference dividend) = 3,456,000 - (9% * 100,000 * 100) EPS for 20x1 = = $1.33 Hence the EPS is $1.33 IV. Venz Company's net income for 20x1 is $50,000. The only potentially dilutive securities outstanding were 1,000 options issued during 20x0, each exercisable for one share at $6. None has been exercised, and 10,000 shares of common were outstanding during 20x1. The average market price of Venz's stock during 20x1 was $20. Compute diluted EPS for 20x1. Solution: Computation of the diluted EPS for 20x1 Net Income = $50000 Number of outstanding share = 10000 Basic Earnings Per Share = Net Income/Weighted average number of share = 50000/10000 = $5per share Computation of Diluted EPS Potential equity shares = 1000 - 1000*6/20 = 700 Diluted EPS = (50000)/(10000+700)) = 50000/10700 = $4.67 Hence the diluted EPS for 20x1 is $4.67 I. On March 1 20x2, Pyne Furniture Co. issued $700,000 of 10% bonds to yield 8%. Interest is payable semiannually on February 28 and August 31. The bonds mature in 10 years. Pyne is a calendar-year corporation. Required: 1. Determine the issue price of the bonds. 2. Prepare an amortization table through the first 5 years. 3. Prepare the journal entries to record bond-related transactions as of the following dates: (a) March 20x2 (b) August 31, 20x2 (c) December 31, 20x2 (d) February 28, 20x3 Solution a $1,000.00 10% 8% 2 $50.00 20 Bond price b Face value of bond Coupon rate Yield Interest payment per year Semi-annual payment (C) Total Payment period $1,135.90 Amortisation Schedule Date 3/1/2011 8/31/2011 2/28/2012 Interest Paid Effective Int. Amortisation $35,000.00 $35,000.00 $31,805.29 $31,677.50 c Date Details 3/1/2011 Cash 10% Bond Premium on Bonds Debit $795,132.28 Credit $700,000.00 $95,132.28 8/31/2011 Interest Amortization of Premium on bonds Cash $31,805.29 $3,194.71 12/31/2011 Accrued Interest Amortization of Premium on bonds Interest Payable (Interest for 4 months) $21,118.34 $2,215.00 2/28/2012 Interest Payable Interest Amortization of Premium on bonds Cash $23,333.33 $10,559.17 $1,107.50 $35,000.00 $23,333.33 $35,000.00 $3,194.71 $3,322.50 $795,132.28 $791,937.58 $788,615.08