QUESTION I

A company, Jupp Jellies had begun their calendar fiscal year of 2018 with 799,000 common shares issued and outstanding. Mr. Jell provided you with additional information on the company's equity and debt transactions for the year.

-On February 1, it had issued 48,000 shares; 840,000 shares on May 1 and 72,000 shares on September 1, respectively.

-Further on March 1, it had acquired 12,000 shares from the market and had immediately cancelled them.

-The company also had outstanding at the beginning of the year, 8% convertible preferred shares capitalized at $1,560,000. The preferred shareholders were eligible to convert their shares into 64,000 common shares.

-Jupp Jellies had not declared any dividends for 2017 or for 2018.

-The company also reported convertible debt. These were bonds payable, issued at par on August

1, 2018, for $15,000,000 and paying interest annually at a 4% rate. Each $1,000 par value bond

could be converted into 8 common shares of the company.

-Companies at Jupiter are taxed at a flat rate of 35%.

-Upon inquiring further, Mr. Jell told you about the the two types of options which had been

issued in prior years and were outstanding as at the beginning of 2018. Put options had been issued to employees which entitled holders to sell 358,000 of the company's common shares to the company for $15.00 each. The company had also issued call options to the management team which enabled them to buy 230,000 common shares at $19.00 each. Jupp Jellies' shares traded at

an annual average price of $10.00 each. All options remained outstanding at the end of the year.vAnd finally, the company reported net income of $4,022,400. There was nothing to report for

Discontinued Operations.

With your meeting having concluded, Mr. Jell, almost apologetically, handed you a list of questions he wanted you to resolve and insisted that you support your responses with clear detailed computations. He did add that there would be other questions arising from related transactions which were to follow once this one was resolved.

REQUIRED:

1. Determine the weighted average number of shares to determine the basic earnings per share for 2018.
2. Determine the basic earnings per share for 2018, assuming
3. (i)the preferred shares were cumulative.
4. (ii)the preferred shares were not cumulative.
5. Identify the potentially dilutive securities which could be included in the computation of diluted earnings per share. Be sure to support your answer with detailed computations and rank these securities where required.
6. Determine the diluted earnings per share to be reported by the company in 2018 assuming preferred shares were cumulative.
7. For this part only, assume that the net income of $4,022,400 was as stated above but included an after-tax gain of $1,235,200 from discontinued operations. Assume the preferred shares were cumulative. Determine the basic and diluted earnings per share to be disclosed for 2018 and show how they would be reported. (Hint: recalculate the basic and diluted earnings per share for both continuing and discontinued operations).
8. For this part only, assume that the company declared a 3 for 1 stock split on June 1. What would be the revised weighted average number of shares for determining the basic earnings per share.

QUESTION II

The discussion now swung towards the subject of the shareholder equity transactions which had occurred during the year [these were briefly mentioned in Question I above]. Mr. Jell suddenly fell silent and began to be evasive toward offering you any further information. After several minutes of awkward silence, he explained to you in a very low tone of voice, "You see we have just about no information whatsoever on this transaction. I mean, we had recruited a great young accountant about 3 months ago and we were looking at a very promising career for him. However, he was sort of an outdoor type with a perchant for adventure. We warned him to be careful on this planet but alas, he ignored our advice. Ten days ago, he went out on a jog on the Jupiter plains. It was a bit windy and foggy that day, and the young man sort of disappeared into one of those black hole things. The rescue squad tried to locate him but alas to no avail. Finally his beeper went beep, be .. ep, be .. e .. e and then silent. Of course we do miss him at times but honestly speaking, what we dearly miss is his backpack. It contained a lot of valuable files which we are now desperately trying to reconstruct. This issue of new shares was one such file lost."

Upon some further questioning on your part, he provided what he knew in bits and pieces.

-The 799,000 outstanding common shares on January 1 had been reported at an amount of

$11,585,500.

-The additional 48,000 common shares had been issued on February 1 for cash at $15.50 each.

-12,000 common shares had been acquired on March 1. "Why did we buy the shares if all we did was

to cancel them right after acquiring them on the same day? I had opposed this acquisition till the very last. We lost $8,320 on that deal," lamented Mr. Jell.

-On March 15, the company had issued subscriptions for some additional common shares. It received $1,530,000 upon application at $1.80 per subscription. Thereafter, the subscribers were required to pay $4.00 on March 31 and the balance, being the final instalment, on April 30. The issue was fully subscribed.

-On March 31, subscribers for 10,000 shares failed to pay the required instalment. The company received the cash from all of the other subscribers. The defaulting subscribers forfeited the first instalment paid.

-On April 30, the company received $$8,400,000 from the remaining subscribers and on May 1, it issued shares to all subscribers in good standing.

Now you get to work on the second list of questions posed by Mr. Jell.

Required:

Prepare journal entries, in proper format, to recordall transactionslisted below:

1. i]the issue of shares on February 1.
2. ii]the acquisition and cancellation of the treasury shares on March 1.
3. iii]the entries required on March 15.
4. iv]the instalment (and default) on March 31.
5. v]the instalment on April 30.
6. vi]the issue of the shares on May 1.

QUESTION III

You were getting the impression that your work at Jupp Jellies was ending when Mr. Jell came up with a "one last one please". He wanted all issues related to dividends to be cleared up once and for all. He said he had some arguments with the internal auditor who thought all of Mr. Jell's computations were incorrect. "I could lose my job over this and be forced to return to Earth. Take a quick look at this issue, I then will take you out for a great lunch and then we can do the job together. You realize by now that I have been a great help to you all this time and I am always around to lend a helping hand."

Jupp Jellies runs a large operation on Saturn under a separate corporate entity, Titanic, Inc., and an independent local management team. However, all strategic decisions are made by the home company. Titan had reported a net income of $1,700,000 for 2018, a capital structure of 225,000 common shares with a contributed capital of $5,500,000; and 200,000 cumulative preferred shares with a contributed capital of $2,000,000. Preferred share holders would receive a minimum dividend of $2.20 but held participative rights in the distribution of excess dividends. The last dividends declared by Titanic were in 2014.

In view of the excellent earnings for the past three years, the Titan management decided to declare a dividend for 2018. It decided that the common share holders would be entitled to a dividend of $9.00 per share and the preferred share holders could participate in the excess based on the dividends to common shareholders exceeding $5.80 per share.

You took a quick glance at the information submitted and agreed to his proposal. He drew a long sigh of relief. "I am so glad you saved my job. Lunch is on me," he stated gratefully. Following a most sumptuous meal of space burgers, a Martian red salad and a jelly shake, you settle down to resolving the questions contained in his list below.

Required:

You were asked to establish a well formatted schedule showing the following:

1. a]The total amount of dividends which the management would declare; and
2. b]The total amounts payable to each group of shareholders.
3. c]The appropriate journal entry made upon the declaration of the dividend.