E16-9 (Issuance of Bonds with Stock Warrants) On May 1, 2014, Friendly Company issued 2,000 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 98, but the market value of the warrants cannot be determined.
a. Prepare the entry to record the issuance of the bonds and warrants.
b. Assume the same facts as part (a), except that the warrants had a fair value of $30. Prepare the entry to record the issuance of the bonds and warrants.
E16-11(Issuance, Exercise, and Termination of Stock Options) On January 1, 2015, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s $10 par common stock at $25 per share. The options were exercisable within a 5-year period beginning January 1, 2017, by grantees still in the employ of the company, and expiring December 31, 2021. The service period for this award is 2 years. Assume that the fair value option pricing model determines total compensation expense to be $350,000.
On April 1, 2016, 2,000 options were terminated when the employees resigned from the company. The market value of the common stock was $35 per share on this date.
On March 31, 2017, 12,000 options were exercised when the market value of the common stock was $40 per share.
Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2015, 2016, and 2017.
E16-13(Weighted-Average Number of Shares) Newton Inc. uses a calendar year for financial reporting. The company is authorized to issue 9,000,000 shares of $10 par common stock. At no time has Newton issued any potentially dilutive securities. Listed below is a summary of Newton’s common stock activities.
1. Number of common shares issued and outstanding at December 31, 2012 2,000,000
2. Shares issued as a result of a 10% stock dividend on September 30, 2013 200,000
3. Shares issued for cash on March 31, 2014 2,000,000
Number of common shares issued and outstanding at December 31, 2014 4,200,000
4. A 2-for-1 stock split of Newton’s common stock took place on March 31, 2015.
a. Compute the weighted-average number of common shares used in computing earnings per common share for 2013 on the 2014 comparative income statement.
b. Compute the weighted-average number of common shares used in computing earnings per common share for 2014 on the 2014 comparative income statement.
c. Compute the weighted-average number of common shares to be used in computing earnings per common share for 2014 on the 2015 comparative income statement.
d. Compute the weighted-average number of common shares to be used in computing earnings per common share for 2015 on the 2015 comparative income statement.
E16-23 (EPS with Convertible Bonds) On June 1, 2012, Andre Company and Agassi Company merged to form Lancaster Inc. A total of 800,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.
On April 1, 2014, the company issued an additional 400,000 shares of stock for cash. All 1,200,000 shares were outstanding on December 31, 2014.
Lancaster Inc. also issued $600,000 of 20-year, 8% convertible bonds at par on July 1, 2014. Each $1,000 bond converts to 40 shares of common at any interest date. None of the bonds have been converted to date. Lancaster Inc. is preparing its annual report for the fiscal year ending December 31, 2014. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,540,000. (The tax rate is 40%.)
Determine the following for 2014.
a. The number of shares to be used for calculating:
(1) Basic earnings per share.
(2) Diluted earnings per share.
b. The earnings figures to be used for calculating:
(1) Basic earnings per share.
(2) Diluted earnings per share.
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