On January 1, 2019, 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 2020 (Ignore all tax effects ) Show the journal entry Garner would have made on January 1, 2019, to record the issuance of the bonds Garner's net income in 2020 was $30,000 and was $27,000 in 2019 Compute basic and diluted earnings per share for Garner for 2020 and 2019 Assume that 75 of the holders of Garner's convertible bonds convert their bonds to stock on June 30, 2021, when Garner's stock is trading at $32 per share Garner pays $50 per bond to induce bondholders to convert Show the journal entry to record the conversion Show how Garner will report income and EPS for 2020 and 2019 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

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jun 28, 2024

On January 1, 2019, Garner issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2

On January 1, 2019, 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 2020. (Ignore all tax effects.)

Show the journal entry Garner would have made on January 1, 2019, to record the issuance of the bonds.
Garner's net income in 2020 was $30,000 and was $27,000 in 2019.Compute basic and diluted earnings per share for Garner for 2020 and 2019.
Assume that 75% of the holders of Garner's convertible bonds convert their bonds to stock on June 30, 2021, when Garner's stock is trading at $32 per share. Garner pays $50 per bond to induce bondholders to convert.Show the journal entry to record the conversion.
Show how Garner will report income and EPS for 2020 and 2019. 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.