1. (TCO A) On January 2, 2011, Mize Co. issued at par $300,000 of 9% convertible bonds. Each $1,000 bond is convertible into 30 shares. No bonds were converted during 2007. Mize had 50,000 shares of common stock outstanding during 2011. Mize’s 2011 net income was $160,000 and the income tax rate was 30%. What would Mize’s diluted earnings per share for 2011 be (rounded to the nearest penny)? Please show all computations. (Points : 25)
2. (TCO E) The original sale of the $50 par-value common shares of Gray Company was recorded as follows:
Cash 290,000
Common stock 250,000
Paid-in capital in excess of par 40,000
Instructions –
Record the treasury stock transactions (given below) under the cost method.
(a) Bought 300 shares of common stock as treasury shares at $62
(b) Sold 80 shares of treasury stock at $60
(c) Sold four treasury shares at $68
3. (TCO D) Hurst, Incorporated sold its 8% bonds with a maturity value of $3,000,000 on August 1, 2009 for $2,946,000. At the time of the sale, the bonds had 5 years until they reached maturity. Interest on the bonds is payable semiannually on August 1 and February 1. The bonds are callable at 104 at any time after August 1, 2011. By October 1, 2011, the market rate of interest has declined and the market price of Hurst’s bonds has risen to a price of 101. The firm decides to refund the bonds by selling a new 6% bond issue to mature in 5 years. Hurst begins to reacquire its 8% bonds in the market and is able to purchase $500,000 worth at 101. The remainder of the outstanding bonds is reacquired by exercising the bonds’ call feature. In the final analysis, how much was the gain or loss experienced by Hurst in reacquiring its 8% bonds? (Assume the firm used straight-line amortization.) Show calculations. (Points : 35)
4. (TCO B) On May 1, 2010, Kirmer Corp. purchased $450,000 of 12% bonds—with interest payable on January 1 and July 1—for $422,800 plus accrued interest. The bonds mature on January 1, 2016. Amortization is recorded when interest is received by the straight-line method (by months and rounded to the nearest dollar). (Assume bonds are available for sale.) Instructions: (a) Prepare the entry for May 1, 2010. (b) The bonds are sold on August 1, 2011 for $425,000 plus accrued interest. Prepare all entries required to properly record the sale. (Points : 30)
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