P16-1 The stockholders' equity section of Martino Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 1,000,000 shares, 300,000 shares issued and outstanding $3,000,000 Paid-in capital in excess of par 600,000 Retained earnings 570,000 During the current year the following transactions occurred. 1. The company issued to the stockholders 100,000 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. 2. The company sold to the public a $200,000, 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. 3. All but 5,000 of the rights issued in (1) were exercised in 30 days. 4. At the end of the year, 80% of the warrants in (2) had been exercised, and the remaining were outstanding and in good standing. 5. During the current year, the company granted stock options for 10,000 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. 6. All but 1,000 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. Instructions Prepare general journal entries for the current year to record the transactions listed above. Prepare the stockholders equity section of the balance sheet at the end of the currient year. Assume that retained earnings at the end of the current year is $750,000. P16-6 (EPS Computation of Basic and Diluted EPS) Charles Austin of the controllers office of Thompson Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending December 31, 2011. Halvor has compiled the information listed below. 1 The company is authorized to issue 8,000,000 shares of $10 par value common stock. As of December 31, 2010, 2,000,000 shares had been issued and were outstanding. 2 The per share market prices of the common stock on selected dates were as follows. Price per Share JULY.1 2010 20.00 JANUARY.1 2011 21.00 APRIL.1 2011 25.00 JULY.1 2011 11.00 AUGUST.1 2011 10.50 NOVEMBER. 1 2011 9.00 DECEMBER.31, 2011 10.00 3. A total of 700,000 shares of an authorized 1,200,000 shares of convertible preferred stock had been issued on July 1, 2010. The stock was issued at its par value of $25, and it has a cumulative dividend of $3 per share. The stock is convertible into common stock at the rate of one share of convertible preferred for one share of common. The rate of conversion is to be automatically adjusted for stock splits and stock dividends. Dividends are paid quarterly on September 30, December 31, March 31, and June 30. 4. Thompson Corporation is subject to a 40% income tax rate. 5. The after-tax net income for the year ended December 31, 2011 was $11,550,000. The following specific activities took place during 2011. 1. January 1A 5% common stock dividend was issued. The dividend had been declared on December 1, 2010, to all stockholders of record on December 29, 2010. 2. April 1A total of 400,000 shares of the $3 convertible preferred stock was converted into common stock. The company issued new common stock and retired the preferred stock. This was the only conversion of the preferred stock during 2011. 3. July 1A 2-for-1 split of the common stock became effective on this date. The board of directors had authorized the split on June 1. 4. August 1A total of 300,000 shares of common stock were issued to acquire a factory building. 5. November 1A total of 24,000 shares of common stock were purchased on the open market at $9 per share. These shares were to be held as treasury stock and were still in the treasury as of December 31, 2011. 6. Common stock cash dividendsCash dividends to common stockholders were declared and paid as follows. April 15$0.30 per share October 15$0.20 per share 7. Preferred stock cash dividendsCash dividends to preferred stockholders were declared and paid as scheduled. Instructions (a) Determine the number of shares used to compute basic earnings per share for the year ended December 31, 2011. (b) Determine the number of shares used to compute diluted earnings per share for the year ended December 31, 2011. (c) Compute the adjusted net income to be used as the numerator in the basic earnings per share calculation for the year ended December 31, 2011