Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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Textbook Question
Chapter 16, Problem 26E
Tama Company’s capital structure consists of common stock and convertible bonds. At the beginning of 2019, Tama had 15,000 shares of common stock outstanding; an additional 4,500 shares were issued on May 4. The 7% convertible bonds have a face value of $80,000 and were issued in 2016 at par. Each $1,000 bond is convertible into 25 shares of common stock; to date, none of the bonds have been converted. During 2019, the company earned net income of $79,200 and was subject to an income tax rate of 30%.
Required:
Compute the 2019 diluted earnings per share.
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Bayside Inc. prepares its financial statements in accordance with IFRS. On January 1, 2023, the company issued $30.0 million, 7%, six-year convertible bonds that pay interest semi-annually on June 30 and
December 31. At the option of the bondholder, and at any time before maturity, each $1,000 bond was convertible into 40 of Bayside Inc.'s common shares. Bayside raised $30.6 million from the sale of the
bonds. At the time of the sale, the market rate of interest for similar bonds without the conversion feature was 8%.
On January 1, 2025, $12.0 million of the bonds were converted. The market price of Bayside Inc.'s common shares at the time of conversion was $35 per share.
Required
Requirement a. Prepare the journal entry to record the issuance of convertible bonds. (Prepare all entries on the company's books. Record debits first, then credits. Explanations are not required. Enter all
amounts in dollars and not in millions. Round amounts to the nearest dollar.)
Date
January 1, 2023
Cash…
MHB Ltd. sold $6,740,000 of 12% bonds, which were dated March 1, 2023, on June 1, 2023. The bonds paid interest on September 1
and March 1 of each year. The bonds' maturity date was March 1, 2033, and the bonds were issued to yield 14%. MHB's fiscal year-end
was February 28, and the company followed IFRS.
On June 1, 2024, MHB bought back $2,740,000 worth of bonds for $2,640,000 plus accrued interest.
(a)
Your answer is partially correct.
Using 1. a financial calculator, or 2. Excel function PV, calculate the issue price of the bonds and prepare the entry for the issuance
of the bonds. Hint: Use the account Interest Expense in your entry). (Round answer to O decimal places, e.g. 5,275. Credit account
titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the
account titles and enter O for the amounts. List all debit entries before credit entries.)
Account Titles and Explanation
Cash
Interest Expense
Bonds…
On January 1, 2020, Sarasota Company issued 10-year, $1,810,000 face value, 6% bonds, at par. Each $1,000 bond is convertible into 15 shares of Sarasota common stock.
Sarasota's net income in 2020 was $403,200, and its tax rate was 20%. The company had 96,000 shares of common stock outstanding throughout 2020. None of the bonds
were converted in 2020.
(a) Compute diluted earnings per share for 2020. (Round answer to 2 decimal places, e.g. $2.55.)
Diluted earnings per share $
(b) Compute diluted earnings per share for 2020, assuming the same facts as above, except that $960,000 of 6% convertible preferred stock was issued instead of the bonds.
Each $100 preferred share is convertible into 5 shares of Sarasota common stock. (Round answer to 2 decimal places, e.g. $2.55.)
Diluted earnings per share $
Chapter 16 Solutions
Intermediate Accounting: Reporting And Analysis
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