E15-13 (a,b) (Stock Split and StockDividend)
The common stock of Warner Inc. is currently selling at $110 pershare. The directors wish to reduce the share price and increaseshare volume prior to a new issue. The per share par value is $10;book value is $70 per share. Five million shares are issued andoutstanding.
(a) How much is the debit to retained earnings if the board votes a2-for-1 stock split?
(b) Prepare the necessary journal entries if the board votes a 100%stock dividend.
P15-1 (Equity Transactions and StatementPreparation)
On January 5, 2010, Phelps Corporation received a charter grantingthe right to issue 5,000 shares of $100 par value, 8% cumulativeand nonparticipating preferred stock, and 50,000 shares of $10 parvalue common stock. It then completed these transactions.
Jan. 11 Issued 20,000 shares of common stock at $16 per share.
Feb. 1 Issued to Sanchez Corp. 4,000 shares of preferred stock forthe following assets: machinery with a fair market value of$50,000; a factory building with a fair market value of $160,000;and land with an appraised value of $270,000.
July 29 Purchased 1,800 shares of common stock at $17 per share.(Use cost method.)
Aug. 10 Sold the 1,800 treasury shares at $14 per share.
Dec. 31 Declared a $0.25 per share cash dividend on the commonstock and declared the preferred dividend.
Dec. 31 Closed the Income Summary account. There was a $175,700 netincome.
Instructions
(a) Record the journal entries for the transactions listedabove.
(b) Prepare the stockholders’ equity section of PhelpsCorporation’s balance sheet as of December 31,
2010.
E16-20 (EPS: Simple Capital Structure) On January 1, 2010,Bailey Industries had stock outstanding asfollows.
6% Cumulative preferred stock, $100 par value,
issued and outstanding 10,000 shares $1,000,000
Common stock, $10 par value, issued and
outstanding 200,000 shares 2,000,000
To acquire the net assets of three smaller companies, Baileyauthorized the issuance of an additional
170,000 common shares. The acquisitions took place as shownbelow.
Date of Acquisition Shares Issued
Company A April 1, 2010 60,000
Company B July 1, 2010 80,000
Company C October 1, 2010 30,000
On May 14, 2010, Bailey realized a $90,000 (before taxes) insurancegain on the expropriation of
investments originally purchased in 2000.
On December 31, 2010, Bailey recorded net income of $300,000 beforetax and exclusive of the gain.
Instructions
Assuming a 40% tax rate, compute the earnings per share data thatshould appear on the financial statements
of Bailey Industries as of December 31, 2010. Assume that theexpropriation is extraordinary.
P16-7 (Computation of Basic and Diluted EPS) Charles Austinof the controller’s office of Thompson Corporationwas given the assignment of determining the basic and dilutedearnings per share values for the year ending December 31,2011. Austin has compiled the information listed below.
1. The company is authorized to issue 8,000,000 shares of $10 parvalue common stock. As of
December 31, 2010, 2,000,000 shares had been issued and wereoutstanding.
2. The per share market prices of the common stock on selecteddates were as follows.
Price per Share
July 1, 2010 $20.00
January 1, 2011 21.00
April 1, 2011 25.00
July 1, 2011 11.00
August 1, 2011 10.50
November 1, 2011 9.00
December 31, 2011 10.00
3. A total of 700,000 shares of an authorized 1,200,000 shares ofconvertible preferred stock had been
issued on July 1, 2010. The stock was issued at its par value of$25, and it has a cumulative dividend
of $3 per share. The stock is convertible into common stock at therate of one share of convertible
preferred for one share of common. The rate of conversion is to beautomatically adjusted
for stock splits and stock dividends. Dividends are paid quarterlyon September 30, December 31,
March 31, and June 30.
and so on..
Instructions
(a) Determine the number of shares used to compute basic earningsper share for the year ended
December 31, 2011.
(b) Determine the number of shares used to compute diluted earningsper share for the year ended
December 31, 2011.
(c) Compute the adjusted net income to be used as the numerator inthe basic earnings per share
calculation for the year ended December 31, 2011.
ScholarMatic: Explanation & Answer
Your ready answer from a verified tutor is just a click away for as little as $14.99
Click Order Now to get 100% Original Answer Customized to your instructions!
