BE16.1 (LO 1) Archer Inc. issued $4,000,000 par value, 7% convertible bonds at 99 for cash.

If the
bonds had not included the conversion feature, they would have sold for 95. Prepare the journal entry
to record the issuance of the bonds.

Cash 3,960,000

Discount on Bond payable 40,000

Bond payable 4,000,000

BE16.2 (LO 1) Petrenko Corporation has outstanding 2,000 $1,000 bonds, each convertible into 50
shares of $10 par value common stock. The bonds are converted on December 31, 2020, when the
unamortized discount is $30,000 and the market price of the stock is $21 per share. Record the
conversion using the book value approach.

Bonds payable 2,000,000 (1000x2000)

Discount on bonds payable 30,000

Common stocks 1,000,000

Paid-in Capital in Excess of Par— Common Stock970,000

E16.3 (LO 1) (Conversion of Bonds) Vargo Company has bonds payable outstanding in the amount of
$500,000, and the Premium on Bonds Payable account has a balance of $7,500. Each $1,000 bond is
convertible into 20 shares of preferred stock of par value of $50 per share. All bonds are converted
into preferred stock.

Instructions

Assuming that the book value method was used, what entry would be made?

Bonds payable 500,000

Premium on bonds payable 7,500

Preferred stock 500,000(50x20x50)

Paid-in Capital in Excess of Par— Preferred Stock 7,500

E16.1 (LO 1, 2) Excel (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.

Cash 19,800,000 (20tr x 98%)

Discount on bonds payable 200,000

Bonds payable 20,000,000

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. Bỏ

Cash 19,600,000 (20m x 98%)

Discount on bonds payable

3. Suppose Sepracor, Inc. called its convertible debt in 2020. 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, 2020. 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.

Debt conversion expense 75,000

Bonds payable 10,000,000

Discount on bonds payable 55,000

Common stock 1,000,000

Cash 75,000

Paid-in Capital in Excess of Par— Common Stock 8,945,000

BE16.6 (LO 3) On January 1, 2020, Barwood Corporation granted 5,000 options to executives. Each
option entitles the holder to purchase one share of Barwood’s $5 par value common stock at $50 per
share at any time during the next 5 years. The market price of the stock is $65 per share on the date of
grant. The fair value of the options at the grant date is $150,000. The period of benefit is 2 years.
Prepare Barwood’s journal entries for January 1, 2020, and December 31, 2020 and 2021.

1/1/2020:

No entry

31/12/2020:

Compensation expense 75,000

Paid-in Capital – Stock options 75,000

31/12/2021:

Compensation expense 75,000

Paid-in Capital – Stock options 75,000

BE16.7 (LO 3) Refer to the data for Barwood Corporation in BE16.6. Repeat the requirements
assuming that instead of options, Barwood granted 2,000 shares of restricted stock.

1/1/2020

Unearned Compensation 130,000 (2000 x 65)

 Common stock 10,000

Paid-in Capital in Excess of Par— Common Stock 120,000

31/12/2020:

Compensation expense 65,000

Unearned compensation 65,000

31/12/2021:

Compensation expense 65,000

Unearned compensation 65,000

BE16.8 (LO 3) On January 1, 2020 (the date of grant), Lutz Corporation issues 2,000 shares of restricted
stock to its executives. The fair value of these shares is $75,000, and their par value is $10,000. The
stock is forfeited if the executives do not complete 3 years of employment with the company. Prepare
the journal entry (if any) on January 1, 2020, and on December 31, 2020, assuming the service period
is 3 years.

1/1/2020:

Unearned Compensation 75,000

Common stock 10,000

Paid-in Capital in Excess of Par— Common Stock 65,000

31/12/2020:

Compensation expense 25,000

Unearned compensation 25,000 (75/3)

BE16.9 (LO 4) Kalin Corporation had 2020 net income of $1,000,000. During 2020, Kalin paid a dividend
of $2 per share on 100,000 shares of preferred stock. During 2020, Kalin had outstanding 250,000
shares of common stock. Compute Kalin’s 2020 earnings per share.

(1,000,000 – 200,000)/250,000 = 3.20/share

BE16.10 (LO 4) Douglas Corporation had 120,000 shares of stock outstanding on January 1, 2020. On
May 1, 2020, Douglas issued 60,000 shares. On July 1, Douglas purchased 10,000 treasury shares,
which were reissued on October 1. Compute Douglas’s weighted-average number of shares
outstanding for 2020.

BE16.11 (LO 4) Tomba Corporation had 300,000 shares of common stock outstanding on January 1,
2020. On May 1, Tomba issued 30,000 shares. (a) Compute the weighted-average number of shares
outstanding if the 30,000 shares were issued for cash. (b) Compute the weighted-average number of
shares outstanding if the 30,000 shares were issued in a stock dividend.

a) (300,000 x 4/12) + (330,000 x 8/12) = 320,000

b) 330,000

BE16.12 (LO 4) The 2020 income statement of Wasmeier Corporation showed net income of $480,000
and a loss from discontinued operations of $120,000. Wasmeier had 100,000 shares of common stock
outstanding all year. Prepare Wasmeier’s income statement presentation of earnings per share.

EPS:

Income from continuing operations 6.0

Loss from discontinued operations of 1,2

Net income 4,8

BE16.13 (LO 5) Rockland Corporation earned net income of $300,000 in 2020 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’s tax rate is 20%. Compute
Rockland’s 2020 diluted earnings per share.

Net income 300,000

Adjustment for interest, net of tax (72,000x(1-20%))* 57,600

Adjusted net income 357,600

Weighted-average number of shares outstanding adjusted for dilutive securities 116,000

 Diluted eps = 357,600/116,000 = 3.08

*800,000 x 9%

BE16.14 (LO 5) DiCenta Corporation reported net income of $270,000 in 2020 and had 50,000 shares of
common stock outstanding throughout the year. Also outstanding all year were 5,000 shares of
cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an
annual dividend of $5 per share. DiCenta’s tax rate is 20%. Compute DiCenta’s 2020 diluted earnings
per share.

Net income 270,000

Weighted-average number of shares outstanding adjusted for dilutive securities 60,000

EPS = 270,000/60,000 = 4.5

BE16.15 (LO 5) Bedard Corporation reported net income of $300,000 in 2020 and had 200,000 shares
of common stock outstanding throughout the year. Also outstanding all year were 45,000 options to
purchase common stock at $10 per share. The average market price of the stock during the year was
$15. Compute diluted earnings per share.

Proceeds from assumed exercise of 45,000 options (45,000 x 10) 450,000

Shares issued upon exercise 45,000

Tresury shares purchasable (450,000/15) 30,000

Incremental shares 15,000

Diluted EPS = 300,000/(200,000 + 15,000) = 1.4