E16-1(Issuance and Conversion of Bonds) For each of the unrelated transactions described below, present the entry(ies) required to record each transaction. 1. Grand Corp. issued $20,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95. Expenses of issuing the bonds were $70,000. 2. Hoosier Company issued $20,000,000 par value 10% bonds at 98. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $4. 3. Sepracor, Inc. called its convertible debt in 2007. Assume the following related to the transaction: The 11%, $10,000,000 par value bonds were converted into 1,000,000 shares of $1 par value common stock on July 1, 2007. On July 1, there was $55,000 of unamortized discount applicable to the bonds, and the company paid an additional $75,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.
E16-11(Issuance, Exercise, and Termination of Stock Options) On January 1, 2008, 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, 2010, by grantees still in the employ of the company, and expiring December 31, 2014. 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, 2009, 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, 2010, 12,000 options were exercised when the market value of the common stock was $40 per share. Hint: (LO 4) Instructions 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, 2008, 2009, and 2010.
E16-14(EPS: Simple Capital Structure) On January 1, 2008, Wilke Corp. had 480,000 shares of common stock outstanding. During 2008, it had the following transactions that affected the common stock account. February 1 Issued 120,000 shares March 1 Issued a 10% stock dividend May 1 Acquired 100,000 shares of treasury stock June 1 Issued a 3-for-1 stock split October 1 Reissued 60,000 shares of treasury stock Hint: (LO 6) Instructions a. Determine the weighted-average number of shares outstanding as of December 31, 2008. b. Assume that Wilke Corp. earned net income of $3,456,000 during 2008. In addition, it had 100,000 shares of 9%, $100 par nonconvertible, noncumulative preferred stock outstanding for the entire year. Because of liquidity considerations, however, the company did not declare and pay a preferred dividend in 2008. Compute earnings per share for 2008, using the weighted-average number of shares determined in part (a). c. Assume the same facts as in part (b), except that the preferred stock was cumulative. Compute earnings per share for 2008. d. Assume the same facts as in part (b), except that net income included an extraordinary gain of $864,000 and a loss from discontinued operations of $432,000. Both items are net of applicable income taxes. Compute earnings per share for 2008