On January 1, 2016, Garner issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2017. (Ignore all tax effects.)

Requirement 1:

A.) Accounting Prepare the journal entry Garner would have made on January 1, 2016, to record the issuance of the bonds.

B.) Garners net income in 2017 was $30,000 and was $27,000 in 2016. Compute basic and diluted earnings per share for Garner for 2017 and 2016.

C.) Assume that 75% of the holders of Garners convertible bonds convert their bonds to stock on June 30, 2018, when Garners stock is trading at $32 per share. Garner pays $50 per bond to induce bondholders to convert. Prepare the journal entry to record the conversion.

Requirement 2:

A.) Analysis Show how Garner will report income and EPS for 2017 and 2016. Briefly discuss the importance of GAAP for EPS to analysts evaluating companies based on price-earnings ratios. Consider comparisons for a company over time, as well as comparisons between companies at a point in time.