FINANCE (THE COMMON STOCK OF WARNER INC.)

    May 19, 2020

Exercise 15-13

 

The common stock of Warner Inc. is currently selling at $111 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $10; book value is $70 per share. 5.55 million shares are issued and outstanding.

 

Prepare the necessary journal entries assuming the following. (If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)

 

(a) The board votes a 2-for-1 stock split.

(b) The board votes a 100% stock dividend.

 

No. Account Titles and Explanation                            Debit                             Credit

(a)   ___________________________________               _____________________         __________________

 

        ___________________________________               _____________________          __________________

 

(b)  ___________________________________               _____________________         __________________

 

        ___________________________________               _____________________          __________________

 

 (To record the declaration.)

 

     ___________________________________               _____________________         __________________

 

     ___________________________________               _____________________          __________________

 

(To record the distribution.)

 

Problem 15-1

 

On January 5, 2012, Phelps Corporation received a charter granting the right to issue 5,500 shares of $105 par value, 7% cumulative and nonparticipating preferred stock, and 52,600 shares of $11 par value common stock. It then completed these transactions.

 

Jan. 11                        Issued 21,870 shares of common stock at $17 per share.

Feb. 1              Issued to Sanchez Corp. 4,400 shares of preferred stock for

                          the following assets: equipment with a fair value of $59,640; a factory                     building with fair value of $167,000; and land with an appraised value of $327,200.

July 29                        Purchased 1,850 shares of common stock at $19 per share. (Use cost           method.)

Aug. 10           Sold the 1,850 treasury shares at $12 per share.

Dec. 31                       Declared a $0.45 per share cash dividend on the common stock     and declared the preferred dividend.

Dec. 31                       Closed the Income Summary account. There was a $184,830 net income.

 

(a) Record the journal entries for the transactions listed above. (Round answers to 0 decimal places, e.g. 125. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually. Record entries in the order displayed in the problem statement.)

 

Date                Account Titles and Explanation                        Debit                              Credit

January 11    __________________________________               ___________________       ________________

 

                         __________________________________               ___________________       ________________

 

                        __________________________________               ____________________     ________________

 

February 1   __________________________________               ___________________       ________________

 

                         __________________________________               ___________________       ________________

 

                        __________________________________               ____________________     ________________

 

                       __________________________________               ___________________       ________________

 

                         __________________________________               ___________________       ________________

 

July 29                       __________________________________               ___________________       ________________

 

                         __________________________________               ___________________       ________________

 

August 10    __________________________________               ___________________       ________________

 

                         __________________________________               ___________________       ________________

 

                        __________________________________               ____________________     ________________

 

December 31  __________________________________            ___________________       ________________

 

                         __________________________________               ___________________       ________________

 

December 31   ________________________________              ___________________       ________________

 

                              _______________________________               ___________________       ________________

 

(b) Prepare the stockholders’ equity section of Phelps Corporation’s balance sheet as of December 31, 2012. (For preferred stock, common stock and treasury stock enter the account name only and do not provide the descriptive information provided in the question.)

 

PHELPS CORPORATION

Stockholders’ Equity

December 31, 2012

 

________________________________________________                                                                             

 

___________________________________                                                               $_______________________

                                                                       

_________________________                                               _________________

 

___________________________________                               _________________

 

________________________________

 

___________________                           $_______________

 

__________________                               _______________

 

                                                                                      _________________

 

__________________________________                                _________________

 

____________________                     &nbsp

;                                 _________________

 

__________________________________                                _________________

                                                           

 

Exercise 16-20

 

On January 1, 2012, Bailey Industries had stock outstanding as follows.

 

6% Cumulative preferred stock, $102 par value,

   issued and outstanding 10,500 shares                                                  $1,071,000

Common stock, $10 par value, issued and

   outstanding 258,000 shares                                                                    2,580,000

 

To acquire the net assets of three smaller companies, Bailey authorized the issuance of an additional 202,800 common shares. The acquisitions took place as shown below.

 

Date of Acquisition                                      Shares Issued

Company A April 1, 2012                                 76,800

Company B July 1, 2012                                  98,400

Company C October 1, 2012                                       27,600

 

On May 14, 2012, Bailey realized a $122,400 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000.

 

On December 31, 2012, Bailey recorded net income of $391,200 before tax and exclusive of the gain.

 

Assuming a 41% tax rate, compute the earnings per share data that should appear on the financial statements of Bailey Industries as of December 31, 2012. Assume that the expropriation is extraordinary. (Round answer to 2 decimal places, e.g. $2.55.)

 

Bailey Industries

Income Statement

For the year ended December 31, 2012

 

_________________________________________________________        $__________________________

 

_________________________________________________________          __________________________

 

_________________________________________________________          $___________________________

 

 

Problem 16-7

 

Charles Austin of the controller’s office of Thompson Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending December 31, 2013. Austin has compiled the information listed below.

 

1.  The company is authorized to issue 8,284,800 shares of $10 par value common stock. As of December 31, 2012, 2,071,200 shares had been issued and were outstanding.

2.  The per share market prices of the common stock on selected dates were as follows.

 

                                                Price per Share

July 1, 2012                                             $20

January 1, 2013                                       21

April 1, 2013                                             25

July 1, 2013                                               11

August 1, 2013                                    10.5

November 1, 2013                                    9

December 31, 2013                              10

 

3.  A total of 762,000 shares of an authorized 1,276,800 shares of convertible preferred stock had been issued on July 1, 2012. 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 the rate of one share of convertible preferred for one share of common. The rate of conversion is to be automatically adjusted for stock splits and stock dividends. Dividends are paid quarterly on September 30, December 31, March 31, and June 30.

4. Thompson Corporation is subject to a 40% income tax rate.

5. The after-tax net income for the year ended December 31, 2013, was $12,510,

000.

 

The following specific activities took place during 2013.

 

1.  January 1—A 5% common stock dividend was issued. The dividend had been declared on December 1, 2012, to all stockholders of record on December 29, 2012.

2.  April 1—A total of 463,200 shares of the $3 convertible preferred stock was converted into common stock. The company issued new common stock and retired the preferred stock. This was the only conversion of the preferred stock during 2013.

3.  July 1—A 2-for-1 split of the common stock became effective on this date. The board of directors had authorized the split on June 1.

4.  August 1—A total of 279,600 shares of common stock were issued to acquire a factory building.

5.  November 1—A total of 28,000 shares of common stock were purchased on the open market at $9 per share. These shares were to be held as treasury stock and were still in the treasury as of December 31, 2013.

6.  Common stock cash dividends—Cash dividends to common stockholders were declared and paid as follows.

        April 15—$0.30 per share

        October 15—$0.20 per share

7.  Preferred stock cash dividends—Cash dividends to preferred stockholders were declared and paid as scheduled.

 

(a) Determine the number of shares used to compute basic earnings per share for the year ended December 31, 2013. (Round answer to 0 decimal places, e.g. 1,500.)

 

Number of shares to compute basic earnings per share______________________________  

 

 

(b) Determine the number of shares used to compute diluted earnings per share for the year ended December 31, 2013. (Round answer to 0 decimal places, e.g. 1,500.)

 

Number of shares to compute diluted earnings per share  ____________________________             

 

 

(c) Compute the adjusted net income to be used as the numerator in the basic earnings per share calculation for the year ended December 31, 2013.

 

Adjusted net income  $_______________________________

 

 

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