Intermediate Accounting 2 Homework. Due Wednesday April 20 at 11:00 pm.

1) Illiad Inc. has decided to raise additional capital by issuing $175,200 face value of bonds with a coupon rate of 11%. 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 $131,280, and the value of the warrants in the market is $32,820. The bonds sold in the market at issuance for $135,500. (a) What entry should be made at the time of the issuance of the bonds and warrants? (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debi Credi t t (b) Prepare the entry if the warrants were nondetachable. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debi Credi t t 2) On November 1, 2014, Olympic Company adopted a stock-option plan that granted options to key executives to purchase 68,500 shares of the company's $14 par value common stock. The options were granted on January 2, 2015, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option-pricing model determines the total compensation expense to be $645,000. All of the options were exercised during the year 2017: 51,375 on January 3 when the market price was $68, and 17,125 on May 1 when the market price was $79 a share. Prepare journal entries relating to the stock-option plan for the years 2015, 2016, and 2017. Assume that the employee performs services equally in 2015 and 2016. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Date 1/2/15 Account Titles and Explanation Debi Credi t t 12/31/1 5 12/31/1 6 1/3/17 5/1/17 3) Flagstad Inc. presented the following data. Net income $2,598,000 Preferred stock: 55,600 shares outstanding, $100 par, 8% cumulative, not convertible Common stock: Shares outstanding 1/1 5,560,000 624,000 Issued for cash, 5/1 378,000 Acquired treasury stock for cash, 8/1 244,800 2-for-1 stock split, 10/1 Compute earnings per share. (Round answer to 2 decimal places, e.g. $2.55.) Earnings per share $ 4) On June 1, 2012, Andre Company and Agassi Company merged to form Lancaster Inc. A total of 809,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis. On April 1, 2014, the company issued an additional 692,000 shares of stock for cash. All 1,501,000 shares were outstanding on December 31, 2014. Lancaster Inc. also issued $892,000 of 20-year, 8% convertible bonds at par on July 1, 2014. Each $1,000 bond converts to 50 shares of common at any interest date. None of the bonds have been converted to date. Lancaster Inc. is preparing its annual report for the fiscal year ending December 31, 2014. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,609,000. (The tax rate is 40%.) Determine the following for 2014. (a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.) (1) Basic earnings per share shares (2) Diluted earnings per share shares (b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.) (1) Basic earnings per share (2) Diluted earnings per share $ $ 5) The Simon Corporation issued 10-year, $5,380,000 par, 8% callable convertible subordinated debentures on January 2, 2014. The bonds have a par value of $1,000, with interest payable annually. The current conversion ratio is 15:1, and in 2 years it will increase to 19:1. At the date of issue, the bonds were sold at 97. Bond discount is amortized on a straightline basis. Simon's effective tax was 38%. Net income in 2014 was $7,560,000, and the company had 2,085,000 shares outstanding during the entire year. Compute both basic and diluted earnings per share. (Round answers to 2 decimal places, e.g. $2.55.) Basic earnings per share Diluted earnings per share $ $ 6) Venzuela Company's net income for 2014 is $47,400. The only potentially dilutive securities outstanding were 1,100 options issued during 2013, each exercisable for one share at $8. None has been exercised, and 12,000 shares of common were outstanding during 2014. The average market price of Venzuela's stock during 2014 was $20. (a) Compute diluted earnings per share. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share $ (b) Assume the same facts as those assumed for part (a), except that the 1,100 options were issued on October 1, 2014 (rather than in 2013). The average market price during the last 3 months of 2014 was $20. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share $ 7) Howat Corporation earned $261,700 during a period when it had an average of 109,800 shares of common stock outstanding. The common stock sold at an average market price of $21 per share during the period. Also outstanding were 36,800 warrants that could be exercised to purchase one share of common stock for $14 for each warrant exercised. (a) Are the warrants dilutive? NoYes (b) Compute basic earnings per share. (Round answer to 2 decimal places, e.g. $2.55.) Basic earnings per share $ (c) Compute diluted earnings per share. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share $ 8) The stockholders' equity section of Martino Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 1,052,000 shares, 315,000 shares issued and outstanding $3,150,000 Paid-in capital in excess of parcommon stock 616,000 Retained earnings 646,000 During the current year, the following transactions occurred. 1 . 2 . 3 . 4 . 5 . 6 . The company issued to the stockholders 173,000 rights. Ten rights are needed to buy one share of stock at $32. The rights were void after 30 days. The market price of the stock at this time was $34 per share. The company sold to the public a $230,000, 10% bond issue at 104. The company also issued with each $100 bond one detachable stock purchase warrant, which provided for the purchase of common stock at $30 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $8. All but 8,650 of the rights issued in (1) were exercised in 30 days. At the end of the year, 80% of the warrants in (2) had been exercised, and the remaining were outstanding and in good standing. During the current year, the company granted stock options for 10,900 shares of common stock to company executives. The company, using a fair value option-pricing model, determines that each option is worth $10. The option price is $30. The options were to expire at year-end and were considered compensation for the current year. All but 1,090 shares related to the stock-option plan were exercised by year-end. The expiration resulted because one of the executives failed to fulfill an obligation related to the employment contract. (a) Prepare general journal entries for the current year to record the transactions listed above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) No Account Titles and . Explanation 1. 2. 3. 4. 5. 6. For options exercised: For options lapsed: Debi Credi t t 9) The information below pertains to Barkley Company for 2015. Net income for the year 9% convertible bonds issued at par ($1,000 per bond); each bond is convertible into 40 shares of common stock 6% convertible, cumulative preferred stock, $100 par value; each share is convertible into 3 shares of common stock Common stock, $10 par value Tax rate for 2015 Average market price of common stock There were no changes during 2015 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no treasury stock. The company also has common stock options (granted in a prior year) to purchase 77,800 shares of common stock at $20 per share. (a) Compute basic earnings per share for 2015. (Round answer to 2 decimal places, e.g. $2.55.) Basic earnings per share $ (b) Compute diluted earnings per share for 2015. (Round answer to 2 decimal places, e.g. $2.55.) Diluted earnings per share $ 10) Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and 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 Notes payable, 10% 8% convertible bonds payable 10% bonds payable Total long-term debt $1,152,00 5,171,00 6,096,00 $12,419,00 Shareholders' equity Preferred stock, 6% cumulative, $52 par value, 100,600 shares authorized, 25,150 shares issued and outstanding $1,307,80 Common stock, $1 par, 10,128,000 shares authorized, 1,012,800 shares issued and outstanding 1,012,80 Additional paid-in capital 4,017,20 Retained earnings 6,008,60 Total shareholders' equity $12,346,40 The following transactions have also occurred at Fitzgerald. 1 . 2 . 3 . 4 . 5 . 6 . Options were granted on July 1, 2013, to purchase 208,400 shares at $16 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. Each bond was issued at face value. The 8% convertible bonds will convert into common stock at 52 shares per $1,000 bond. The bonds are exercisable after 5 years and were issued in fiscal year 2013. The preferred stock was issued in 2013. There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2014. The 1,012,800 shares of common stock were outstanding for the entire 2014 fiscal year. Net income for fiscal year 2014 was $1,555,000, and the average income tax rate is 40%. For the fiscal year ended June 30, 2014, calculate the following for Fitzgerald Pharmaceutical Industries. (Round answers to 2 decimal places, e.g. $2.45.) (a) Basic earnings per share. Basic earnings per share $ (b) Diluted earnings per share. Diluted earnings per share $