Solution manual intermediate accounting 15th kiesoch16

a Basic formulas: Value of bonds without warrants X Issue price = Value assigned to bonds Value of bonds without warrants + Value of warrants Value of warrants X Issue price = Value assi

(a) Basic formulas:

Value of bonds without warrants

X Issue price = Value assigned to bonds Value of bonds without warrants

+ Value of warrants Value of warrants

X Issue price = Value assigned to warrants Value of bonds without warrants

The entry if warrants were nondetachable is:

Cash 825,000

200,000 Deduct value assigned to stock warrants

[To record compensation expense  for 2016 (1/3 X $660,000)]

[To record compensation expense  for 2017 (1/3 X $660,000)]

(a) 10,000,000 shares:

2012 weighted­average number of shares

    previously computed 5,000,000 Retroactive adjustment for stock split X       2

10,000,000 (b) 11,500,000 shares:

5,750,000 Retroactive adjustment for stock split X       2

11,500,000 (c) 14,950,000 shares:

2013 weighted average number of shares    

previously computed 11,500,000 Retroactive adjustment for stock dividend X        1.30

14,950,000 (d) 15,600,000 shares

(b) Earnings per share = $8,352,000 – $1,800,000 = $0.98

6,660,000 (weighted­average shares)

(c) Earnings per share = 6,660,000  = $1.25

($300,000 ÷ 609,583)   0.49

Event Outstanding Dates Outstanding Restatement Shares Fraction of Year Weighted Shares Beginning balance Jan. 1–Apr 1 500,000 1.4 3/12 175,000 Issued shares Apr 1–Oct. 1 1,300,000 1.4 6/12 910,000 Stock dividend Oct. 1–Dec. 31 1,820,000 3/12    455,000 Weighted­average number of shares outstanding 1,540,000

Net income $5,800,000

$5,000,000 Net income applicable to common stock

Income taxes   3,944,800 Net income $5,917,200 Per share of common stock:

Shares Outstanding

1,405,833

Preferred dividend (200,000 X $100 X 6%)     (1,200,000)

$1,489,000 Earnings per share for 2014:

Net income applicable to common stock = $1,489,000 = $1.06

Weighted average number of common shares outstanding 1,405,833

Interest ($1,000,000 X .06 X 1/2) $30,000

1 – tax rate (40%) X            .60 After­tax interest $           525,000

$10,000,000/$1,000 = 10,000 debentures

Increase in diluted earnings per share denominator:

10,000 X

            12 120,000 Earnings per share:

Because diluted EPS is anti­dilutive, only the $2.10 EPS amount would be  reported.

(b) If the convertible security were preferred stock, basic EPS would be the same   assuming   there   were   no   preferred   dividends   declared   or   the preferred   was   noncumulative   For   diluted   EPS,   the   numerator   would  

be the net income amount, and the denominator would be 12,920,000.

(a) Net income $  8,680,000 Add:  Interest savings (net of tax)

    [$2,000,000 X (1 – .30)]     1,400,000 Adjusted net income $10,080,000

X

          20 1,000,000 shares

      3/12 Incremental shares      212

86,000 + 5,289 + 212 E16­27B (10–15 minutes)

(a) Because the earnings level is not being currently attained, contingent shares are not included in the computation of diluted earnings per share (b) The contingent shares would have to be reflected in diluted earnings per

share because the earnings level is currently being attained.

E16­28B (15–20 minutes)

(a) Dilutive

The warrants are dilutive because the option price necessary to acquire one share of common stock ($30 for two warrants) is less than the average market price ($32).

Proceeds from assumed exercise:

(50,000 warrants/2 warrants per share X $30 exercise price) $750,000 Treasury shares purchasable with proceeds:

Incremental shares issued:

Cumulative Expense

Cumulative Expense Accrued to Date

Current Year Expense

Cumulative Expense

Cumulative Expense Accrued to Date

Current Year Expense