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DILUTIVE SECURITIES AND EARNING exercises

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Question;Ex. 16-120?Convertible Bonds.;Dahl Co. issued $5,000,000 of 12%, 5-year;convertible bonds on December;1, 2006 for $5,020,800 plus accrued interest. The bonds were dated April 1, 2006 with interest;payable April 1 and October 1. Bond;premium is amortized each interest period on a straight-line basis. Dahl Co.;has a fiscal year end of September 30.;On October 1, 2007, $2,500,000 of these bonds were converted;into 35,000 shares of $15 par common stock.;Accrued interest was paid in cash at the time of conversion.;Instructions;(a) Prepare the entry to record the interest;expense at April 1, 2007.;Assume that interest payable was credited when the bonds were issued (round to;nearest dollar).;(b) Prepare the entry to record the conversion on;October 1, 2007.;Assume that the entry to record amortization of the bond premium and interest;payment has been made.;Ex. 16-121?Convertible Bonds.;Linn Co. sold convertible bonds at a premium.;Interest is paid on May 31 and November 30. On May 31, after interest was paid;100, $1,000 bonds are tendered for conversion into 3,000 shares of $10 par;value common stock that had a market price of $40 per share. How should Linn;Co. account for the conversion of the bonds into common stock under the book;value method? Discuss the rationale for this method.;Ex. 16-122?Convertible Debt and Debt with;Warrants (Essay).;What accounting treatment is required for convertible;debt? Why? What accounting treatment is;required for debt issued with stock warrants?;Why?;Ex. 16-123?Stock options.;Prepare the necessary entries from 1/1/07-2/1/09;for the following events using the fair value method. If no entry is needed, write "No;Entry Necessary.;1. On 1/1/07, the stockholders adopted a stock option plan for;top executives whereby each might receive rights to purchase up to 12,000;shares of common stock at $40 per share. The par value is $10 per share.;2. On 2/1/07, options were granted to each of five executives to;purchase 12,000 shares. The options were non-transferable and the executive had;to remain an employee of the company to exercise the option. The options expire;on 2/1/09. It is;assumed that the options were for services performed equally in 2007 and 2008.;The Black-Scholes option pricing model determines total compensation expense to;be $1,300,000.;3. At 2/1/09, four executives exercised their options. The fifth;executive chose not to exercise his options, which therefore were forfeited.;Ex. 16-124?Weighted;average shares outstanding.;On January;1, 2007, Yarrow Corporation had 1,000,000 shares of common stock;outstanding. On March 1, the corporation issued 150,000 new shares to raise;additional capital. On July 1, the corporation declared and issued a 2-for-1;stock split. On October 1, the corporation purchased on the market 600,000 of;its own outstanding shares and retired them.;Instructions;Compute the weighted average number of shares to;be used in computing earnings per share for 2007.;Ex. 16-125?Earnings Per Share. (Essay);Define the;following;(a) The;computation of earnings per common share;(b) Complex;capital structure;(c) Basic;earnings per share;(d) Diluted;earnings per share;Ex. 16-126?Earnings;per share.;Ramirez Corporation has 400,000 shares of common;stock outstanding throughout 2007. In addition, the corporation has 5,000;20-year, 7% bonds issued at par in 2005. Each $1,000 bond is convertible into 20;shares of common stock after 9/23/08.;During the year 2007, the corporation earned $600,000 after deducting all;expenses. The tax rate was 30%.;Instructions;Compute the;proper earnings per share for 2007.;Ex. 16-127?Diluted;earnings per share.;Brewer Company had 400,000 shares of common stock;outstanding during the year 2007. In addition, at December 31, 2007, 90,000 shares were issuable;upon exercise of executive stock options which require a $40 cash payment upon;exercise (options granted in 2005). The average market price during 2007 was;$50.;Instructions;Compute the number of shares to be used in;determining diluted earnings per share for 2007.;*Ex. 16-128?Stock appreciation rights.;On January;1, 2006, Rye Co. established a stock appreciation rights plan for;its executives. They could receive cash at any time during the next four years equal to the difference between;the market price of the common stock and a preestablished price of $16 on 300,000;SARs. The market price is as follows: 12/31/06?$21, 12/31/07?$18, 12/31/08?$19, 12/31/09?$20. On December 31, 2008, 50,000 SARs are exercised, and the;remaining SARs are exercised on December 31, 2009.;Instructions;(a) Prepare a schedule that;shows the amount of compensation expense for each of the four years starting;with 2006.;(b) Prepare the journal entry at 12/31/07 to record;compensation expense.;(c) Prepare the journal entry at 12/31/09 to record the;exercise of the remaining SARs.

 

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