1.

(A)

Sr. No. Accounts Debit Credit Calculation

1  Treasury share 27,160 280 * 97

Cash 27,160

2  Retained earnings 90,400 (4,800 - 280) * 20

Dividend payable 90,400

3  Dividend payable 90,400

Cash 90,400

4  Cash 28,560 280 * 102

Treasury share 27,160 280 * 97

Paid-in capital for treasury share 1,400

5  Treasury share 52,500 500 * 105

Cash 52,500

6  Cash 33,600 350 * 96

Paid in capital from treasury

1,400
share

Retained earnings 1,750

Treasury share 36,750

(B)

N Accounts Debit Credit

o
1. Treasury Shares (280 x $97) 27.160
Cash 27.160
2. Retained Earnings ([4.800-280] x $20) 90.400
Dividend Payable 90.400
3. Dividend Payable 90.400
Cash 90.400
4. Cash 28.560
Treasury Shares 27.160
Paid in Capital For treasury share 1.400
5. Treasury Shares 52.500
Cash 52.500
6. Cash 33.600
Paid In Capital 1.400
Retained Earnings 1.750
 Treasury Shares 36.750

Common Shares ( $100 per shares authorized 18.000 shares ) $480.000

Add : Retained Earnings $305.850
Total paid in capital and retained earnings $785.850
Less : Treasury Shares $15.750
Shareholder’s Equity $750.100
2.
(A)
Answer :
Account Receivable 2,700,000
Sales 2,700,000
Waranty Expense 108,000
Waranty Liability 108,000

2019

Waranty Liability 60,000

Inventory 24,000
Accrued Payroll 36,000
(B)
2018 = $ 0
2019 = $ 60.000

(C) 2018 Balance Current Liabilities = 54,000

3. Basic earnings per share

= Net income / Average number of shares outstanding
= $7,400,000 / 2,000,000
= $3,700,000

Compute the amount of after tax savings if the bonds are converted in to shares of common stock.
Savings = Interest expense x (1 - tax rate) = $220,000 x (1 - 0.30) = $154,000
Net income after conversion
= Net income before conversion + Savings in interest expense if bonds are converted = $7,400,000+
$154,000
= $7,554,000

Compute the number of shares to be issued to convert the bonds after two years at a conversion
ratio of 16:1
Number of shares to be issued = (4,000,000/$1,000) x 15 = 60,000
Compute the total number of shares outstanding after conversion of bonds.
Total number of shares after conversion of bonds = 2,000,000 + 60,000 = 2,060,000

Diluted earnings per share

= Net income after conversion / Number of shares outstanding after conversion
= $7,554,000/ 2,060,000
= $3,6669
=$3,667 (if rounded off)