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Chapter 16: Q19E (page 879)

(EPS: Simple Capital Structure) A portion of the combined statement of income and retained earnings of Seminole Inc. for the current year follows.

Income from continuing operations \(15,000,000

Loss from discontinued operations, net of

applicable income tax (Note 1) 1,340,000

Net income 13,660,000

Retained earnings at the beginning of the year 83,250,000

96,910,000

Dividends declared:

On preferred stock鈥擻)6.00 per share \( 300,000

On common stock鈥擻)1.75 per share 14,875,000 15,175,000

Retained earnings at the end of the year \(81,735,000

Note 1. During the year, Seminole Inc. suffered a major loss from discontinued operations of \)1,340,000 after applicable income tax reduction of \(1,200,000.

At the end of the current year, Seminole Inc. has outstanding 8,500,000 shares of \)10 par common stock and 50,000 shares of 6% preferred. On April 1 of the current year, Seminole Inc. issued 1,000,000 shares of common stock for $32 per share to help finance the loss from discontinued operations.

Instructions

Compute the earnings per share on common stock for the current year as it should be reported to stockholders

Short Answer

Expert verified

The earnings per share on common stock for the current year to be reported to stockholders is $1.62

Step by step solution

01

Computation of net income available for shareholders-

Income from continuous operations

$15,000,000

Less: Preferred dividend

($300,000)

Common stock Income from continuous operations

$14,700,000

Less: Loss from discontinued operations, net of applicable income tax

($1,340,000)

Net Income

$13,360,000

02

Computation of weighted average no of shares outstanding-

Date

Shares outstanding

Fraction

Weighted shares

Jan 1

7,500,000

3/12

$1,875,000

Apr 1

8,500,000

9/12

$6,375,000

$8,250,000

03

Computation of earnings per share-

Income before extraordinary loss ($14,700,000

/ $8,250,000)

1.78

Less: Extraordinary loss ($1,340,000/$8,250,000)

(0.16)

Net Income (10,520,000/5,250,000)

1.62

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Most popular questions from this chapter

GROUPWORK (Entries for Various Dilutive Securities) The stockholders鈥� equity section of Martino Inc. at the beginning of the current year appears below.

Common stock, \(10 par value, authorized 1,000,000

shares, 300,000 shares issued and outstanding \)3,000,000

Paid-in capital in excess of par鈥攃ommon stock 600,000

Retained earnings 570,000

During the current year, the following transactions occurred.

1. The company issued to the stockholders 100,000 rights. Ten rights are needed to buy one share of stock at \(32. The rights were void after 30 days. The market price of the stock at this time was \)34 per share.

2. The company sold to the public a \(200,000, 10% bond issue at 104. The company also issued with each \)100 bond one detachable stock purchase warrant, which provided for the purchase of common stock at \(30 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at \)8.

3. All but 5,000 of the rights issued in (1) were exercised in 30 days.

4. At the end of the year, 80% of the warrants in (2) had been exercised, and the remaining were outstanding and in good standing.

5. During the current year, the company granted stock options for 10,000 shares of common stock to company executives.

The company, using a fair value option-pricing model, determines that each option is worth \(10. The option price is \)30.

The options were to expire at year-end and were considered compensation for the current year.

6. All but 1,000 shares related to the stock-option plan were exercised by year-end. The expiration resulted because one of the executives failed to fulfill an obligation related to the employment contract.

Instructions

(a) Prepare general journal entries for the current year to record the transactions listed above.

(b) Prepare the stockholders鈥� equity section of the balance sheet at the end of the current year. Assume that retained earnings

at the end of the current year is $750,000.

Rockland Corporation earned net income of \(300,000 in 2017 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was \)800,000 of 9% bonds, which are convertible into 16,000 shares of common. Rockland鈥檚 tax rate is 40%. Compute Rockland鈥檚 2017 diluted earnings per share.

(Issuance, Exercise, and Termination of Stock Options) On January 1, 2018, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company鈥檚 \(10 par common stock at \)25 per share. The options were exercisable within a 5-year period beginning January 1, 2020, by grantees still in the employ of the company, and expiring December 31, 2024. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be \(350,000.On April 1, 2019, 2,000 options were terminated when the employees resigned from the company. The market price of the common stock was \)35 per share on this date.On March 31, 2020, 12,000 options were exercised when the market price of the common stock was $40 per share.

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, 2018, 2019, and 2020.

EXCEL (Entries for Conversion, Amortization, and Interest of Bonds) Volker Inc. issued \(2,500,000 of convertible 10-year bonds on July 1, 2017. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was \)54,000, which is being amortized monthly on a straight-line basis. The bonds are convertible after one year into 8 shares of Volker Inc.鈥檚 \(100 par value common stock for each \)1,000 of bonds. On August 1, 2018, $250,000 of bonds were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. At the time of conversion, any accrued interest on bonds being converted is paid in cash.

Instructions

Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following

dates. (Round to the nearest dollar.)

(a) August 1, 2018. (Assume the book value method is used.)

(b) August 31, 2018.

(c) December 31, 2018, including closing entries for end-of-year.

On July 1, 2017, Roberts Corporation issued \(3,000,000 of 9% bonds payable in 20 years. The bonds include detachable warrants giving the bondholder the right to purchase for \)30 one share of \(1 par value common stock at any time during the next 10 years. The bonds were sold for \)3,000,000. The value of the warrants at the time of issuance was $100,000. Prepare the journal entry to record this transaction.
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