Question & Answer

Rockland Corporation earned net income of $300,000 in 2014 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was $800,000 of 10% bonds, which are convertible into 16,000 shares of common. Rockland’s tax rate is 40%. Compute Rockland’s 2014 diluted earnings per share.

Tomba Corporation had 300,000 shares of common stock outstanding on January 1, 2014. On May 1, Tomba issued 30,000 shares. (a) Compute the weighted-average number of shares outstanding if the

30,000 shares were issued for cash. (b) Compute the weighted-average number of shares outstanding if the 30,000 shares were issued in a stock dividend.

Douglas Corporation had 120,000 shares of stock outstanding on January 1, 2014. On May 1, 2014,

Douglas issued 60,000 shares. On July 1, Douglas purchased 10,000 treasury shares, which were reissued on October 1. Compute Douglas’s weighted-average number of shares outstanding for 2014.

Kalin Corporation had 2014 net income of $1,000,000. During 2014, Kalin paid a dividend of $2 per share on 100,000 shares of preferred stock. During 2014, Kalin had outstanding 250,000 shares of common stock. Compute Kalin’s 2014 earnings per share.

On January 1, 2014 (the date of grant), Lutz Corporation issues 2,000 shares of restricted stock to its executives. The fair value of these shares is $75,000, and their par value is $10,000. The stock is forfeited if the executives do not complete 3 years of employment with the company. Prepare the journal entry (if any) on January 1, 2014, and on December 31, 2014, assuming the service period is 3 years.

Refer to the data for Barwood Corporation in BE16-6. Repeat the requirements assuming that instead of options, Barwood granted 2,000 shares of restricted stock.

On January 1, 2014, Barwood Corporation granted 5,000 options to executives. Each option entitles the holder to purchase one share of Barwood’s $5 par value common stock at $50 per share at any time during the next 5 years. The market price of the stock is $65 per share on the date of grant. The fair value of the options at the grant date is $150,000. The period of benefit is 2 years. Prepare Barwood’s journal entries for January 1, 2014, and December 31, 2014 and 2015.

McIntyre Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling separately at 98. The market price of the warrants without the bonds cannot be determined. Use the incremental method to record the issuance of the bonds and warrants.

Eisler Corporation issued 2,000 $1,000 bonds at 101. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market price of $40. Use the proportional method to record the issuance of the bonds and warrants

Pechstein Corporation issued 2,000 shares of $10 par value common stock upon conversion of

1,000 shares of $50 par value preferred stock. The preferred stock was originally issued at $60 per share.

The common stock is trading at $26 per share at the time of conversion. Record the conversion of the preferred 

Petrenko Corporation has outstanding 2,000 $1,000 bonds, each convertible into 50 shares of $10 par value common stock. The bonds are converted on December 31, 2014, when the unamortized discount is $30,000 and the market price of the stock is $21 per share. Record the conversion using the book value approach.

Archer Inc. issued $4,000,000 par value, 7% convertible bonds at 99 for cash. If the bonds had not included the conversion feature, they would have sold for 95. Prepare the journal entry to record the issuance of the bonds.

How is antidilution determined when multiple securities are involved?

What type of earnings per share presentation is required in a complex capital structure?

What is meant by the term antidilution? Give an example.

Earnings per share can affect market prices of common stock. Can market prices affect earnings per share? Explain.

Question:

Explain the treasury-stock method as it applies to options and warrants in computing dilutive earnings per share data.

Explain how convertible securities are determined to be potentially dilutive common shares and how those convertible securities that are not considered to be potentially dilutive common shares enter into the determination of earnings per share data.

Explain how convertible securities are determined to be potentially dilutive common shares and how those convertible securities that are not considered to be potentially dilutive common shares enter into the determination of earnings per share data.

What are the computational guidelines for determining whether a convertible security is to be reported as part of diluted earnings per share?

Define the following terms.

(a) Basic earnings per share.

(b) Potentially dilutive security.

(c) Diluted earnings per share.

(d) Complex capital structure.

(e) Potential common stock.

What effect do stock dividends or stock splits have on the computation of the weighted-average number of shares outstanding?

At December 31, 2014, Reid Company had 600,000 shares of common stock issued and outstanding, 400,000 of which had been issued and outstanding throughout the year and 200,000 of which were issued on October 1, 2014. Net income for 2014 was $2,000,000, and dividends declared on preferred stock were $400,000. Compute Reid’s earnings per common share. (Round to the nearest penny.)

What are the advantages of using restricted stock to compensate employees?

How is compensation expense computed using the fair value approach?