On December 31, 2012, Wico had 10,000 shares of $10 par common stock and 2,000 shares of 9.

4%, $100 par, convertible Fran Co. has 24,000 shares of common stock outstanding at the beginning of 2013. Fran co issued 3,000 additional shares on On 1/1/12, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 15,000
preferred stock outstanding. The following information pertains to Wico Company for 2013: May 1 and 2,000 additional shares on September 30. It also has two convertible securities outstanding at the end of 2013. These
shares of common stock at $40 per share. The par value is $10 per share.
• On April 1 and June 1, respectively, the company issued 2,000 and 6,000 additional shares of common are:
stock. Convertible preferred stock: 2,500 shares of 8.5%, $50 par, preferred stock were issued on 1/1/10 for $60 per share. Each share NO Entry
• On November 1, Wico declared a 2-for-1 stock split. of preferred stock is convertible into 3 shares of common stock. Current dividends have been declared and paid. To date, no On 2/1/12, options were granted to each of five executives to purchase 15,000 shares. The options were non-transferable and the
• Compensatory share options that currently allow the purchase of 2,000 shares of common stock at $18 preferred stock has been converted. executive had to remain an employee of the company to exercise the option. The options expire on 2/1/14. It is assumed that the options
per share were outstanding during 2013. To date, none of these options have been exercised.
were for services performed equally in 2012 and 2013. The Black-Scholes option pricing model determines total compensation expense
• The preferred stock was issued in 2012. Each share of preferred stock is currently convertible into 4 Convertible bonds: bonds with a face value of $250,000 and an interest rate of 5.5% were issued at par in 2012. Each $1,000
shares of common stock. (Note: Already adjusted for stock split) To date, no preferred stock has been converted. bond is convertible into 20 shares of common stock. To date, no bonds have been converted. to
• Current dividends have been paid on both preferred and common stock. 2/1/12 No entry necessary.
• Net income after taxes for 2013 totaled $109,800 Fran Co. had net income of $72,500 during 2013. The income tax rate is 30%. 12/31/12
• The company is subject to a 30% income tax rate.
Compensation Expense 800,000
• The common stock sold at an average market price of $24 per share during 2013.
Compute the number of shares of common stock that Fran co. should use in Calculate basic EPS for 2013. Paid-in Capital—Stock Options 800,000
calculating basic EPS for 2013. (72.500-10625)/26500=2.33 12/31/13
Prepare supporting calculations for Wico and compute its Basic EPS. Jan 1-May 1 4/12 x 24000= 8000 2500*.085*50=10625 prefered
May 1- Sept 30 5/12 x 27000=11250
Compensation Expense 800,000
Earnings
Explanation Earnings Shares= Sept 30-Dec 1 3/12 x 29000=7250 Paid-in Capital—Stock Options 800,000
Per Share Weighted Average Shares Out= 26500 At 2/1/14, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.
Basic earnings and shares $91,000 30,000 = $3.03 Basic Cash (4 × 15,000 × $40) 2,400,000
Paid-in Capital—Stock Options ($1,600,000 × 4/5) 1,280,000
$91,000 =$109,800 (net income)–$18,800 (preferred dividends 9.4% X 2,000 sh X $100 par) Calculate Diluted EPS for 2013. Common Stock 600,000
Interest: 250000 x 5.5%=13750 ; 13750(1-30%)=9625 Shares: 250000/ $1000 =250 bonds x 20 shares= Paid-in Capital in Excess of Par 3,080,000
bWeighted average shares:
Jan 1 10,000 x 2.00x 3/12 = 5,000 5000 Preferred: 10625/7500=1.42 Shares: 2500 PS shares x 3 shares= 7500
Apr 1 12,000 x 2.00 x 2/12 = 4,000 DEPS: {72,500-0+[13750 x (1-.3)]}/(26,500+7500+5000) = $2.11 Paid-in Capital—Stock Options 320,000
June 1 18,000 x 2.00 x 5/12 = 15,000
Nov 1 36,000 x 2/12 = 6,000
Paid-in Capital—Expired Stock Options 320,000
Weighted average 30,000
1.) Daimler Co. declares a property dividend on March 1 to be distrusted to stockholders on April 15. The property is an
investment in shares of B Corporation and has a carrying value of 11,000. The market value of the B Corporation shares
Prepare supporting calculations for Wico and compute its Diluted EPS. Diluted EPS=2.85
is $14,000 on March 1 and $14,900 on April 15. On January 1, 2012, Hoppy Corporation issued $18,000,000 of 10% ten-year bonds at 103. The bonds are callable at the option of Hoppy at 105. Hoppy has recorded
Basic earnings and shares: 91,000/30,000=3.03. Increment in Shares = 500.
Date of declaration: amortization of the bond premium on the straight-line method (which was not materially different from the effective-interest method).
(2000*18)/24=1500 2000-1500=500. Tentative DEPS: 91,000/30,500=2.98 DEPS 1.
Investments in securities 3,000
Preferred Dividend Savings=18,800.Increment in shares (PS)=8,000 (2000 x 4).
Unrealized Holding Gain or Loss -Income 3,000 On December 31, 2018, when the fair value of the bonds was 96, Hoppy repurchased $4,000,000 of the bonds in the open market at 96. Hoppy has recorded interest
30,000+500+8000=38,00 Diluted EPS : 109,800/38500=2.85
and amortization for 2018. Ignoring income taxes and assuming the gain is material, Hoppy should report this reacquisition as: a gain of $196,000
Retained earnings 14,000
Property dividends payable 14,000
18,000,000 x 1.03=Bonds payable 18,540,000 – cash 18,000,000= 540,000 Premium
Date of payment: Premium Account ($540,000/10 = $54,000 amortized per year x 7 years = 378,000 amortized through 12/31/18 leaving a balance in the account of $162,000 prior to
Eli Company issues 300 shares of $50 par preferred stock and 1,000 shares of $10 par common stock in a “package” sale. Property dividends payable 14,000 the reacquisition)
Total proceeds received amount to $39,000. Record the transaction for each of the following independent assumptions. Investments in securities 14,000 Reacquisition Price $4,000,000 x .96 = 3,840,000 ; Bond Payable 4,000,000 + Premium 36,000* = 4,036,000 – 3,840,000 =196,000 * 162,000 x (4M/18M)=36000
1.) The common stock has a current market value of $19 per share; the current market value of preferred stock is not
known. 2.) Hough Co. declares a liquidating dividend of $4000.
Cash 39,000
Common Stock, $10 par (1,000 x $10) 10,000 Date of declaration: The original sale of 5,000 shares of the $50 par value common shares of Gray National Bank has a $200,000, 12% note receivable from
Additional Paid-in Capital on Common Stock (1,000 x $9) 9,000 APIC 4,000 Company was recorded as follows: Priday Company that is due on 12/31/16. On January 1,
Preferred Stock, $50 par (300 x $50) 15,000 Dividends payable 4,000
Cash 290000 2016, the bank and the company agree to a loan
Additional Paid-in Capital on Preferred Stock* 5,000
Date of payment: Common stock 250000 restructuring because of the financial condition of the

2.)The common stock and the preferred stock have a current market value per share of $22 and $60, respectively.
Dividends payable 4,000 Paid-in Capital in Excess of Par 40000 company. The bank extends the loan to 12/31/18, reduces
Cash 4,000 Record the treasury stock transactions (given below) under the cost method: the principal to $120,000, and reduces the interest rate to
Cash 39,000 3.) Duke Corp. has 100,000 shares of $10 par common stock outstanding on 3/1/10. On March 2, the board of directors
Transactions: 6%.
Common Stock, $10 par 10,000 declares a 10% stock dividend distributable on April 4 to stockholders of record on March 16. The market price per share a. Prepare the journal entries on Priday’s (the debtor)
Additional Paid-in Capital on Common Stock 11,450 of common stock is $24 on March 2, $23 on March 16 and $25 on April 4. (a) Bought 350 shares of common stock as treasury shares at $62.
books on January 1, 2016. Future cash flows: 120,000 +
Preferred Stock, $50 par 15,000 (b) Sold 100 shares of treasury stock at $60.
Additional Paid-in Capital on Preferred Stock 2,550 Date of declaration: [7200 (120K X 6%) X 3 years) = 141,600
(c) Sold 50 treasury shares at $68. NP carrying value 200,000 – 141,600 = 58,400 gain
Retained earnings 240,000
Common stock dividend distributable 100,000 (d) Retired the remaining 200 shares of treasury stock.
Aggregate fair value: APIC (10% X 100,000 = 10,000 sh X $24 = 240,000 – 100,000) 140,000 Notes payable 58,400
a.) Treasury stock 21700 Gain on Restructure 58,400
Common: $22 x 1,000 = $22,000 Date of distribution: Cash (350 x 62) 21700 b. Prepare the journal entry on National Bank’s (the
Preferred: $60 x 300 = 18,000 Common stock Dividend distributable 100,000
$40,000 Common stock 100,000 b.) Cash (100 x 60) 6000 creditor) books on January 1, 2016.
4.) Cooper Co. has 100,000 shares of $10 par common stock outstanding on 3/1/10. On March 2, the board of directors retained earnings (6200-6000) 200 New carrying value of note: [n=3, I = 12%; FV = 120,000;
declares a 40% dividend. The dividend shares are to be distributed on April l3 to stockholders on record on March 15. Treasury stock 6200 pmt = 7200; CPT PV] ; PV = 102,707
Allocation:
The market price per share of common stock is $24 on March 2, $15 on March 15, and $16 on April 3. Loss: Note receivable 200,000 – 102,707 = 97,293
c.) Cash (50 x 68) 3400
Date of declaration:
$39,000 x (22000/40000)= $21,450 Retained earnings 400,000 APIC (3400-3100) 300
$39,000 x (18000/40000)= 17,550 Common stock dividend distributable 400,000 Treasury stock (50x62) 3100 Bad Debt Expense 97,293
$39,000 (40% X 100,000 = 40,000 sh X $10 = 400,000) d.) CS (200 x 50) 10000 Allowance for bad debt 97,293
APIC CS (200 x 8) 1600
Date of distribution:
Common stock Dividend distributable 400,000 APIC Treasury 300
It is 12/31/14 and Vargo Corp. owes $270,000 to First Trust. The debt is a 10-year, 12% note due December 31, 2014. Because
Common stock 400,000 Retained Earnings (plug) 500 Norris Company sold 206 color laser copiers on July 10, 2017, for $3,980 each,
Vargo Corp. is in financial trouble, First Trust agrees to extend the maturity date to December 31, 2016, reduce the principal to
Treasury stock (200 x 62) 12400 together with a 1-year assurance warranty. Maintenance on each copier
during the warranty period is estimated to be $346. Prepare entries to
$220,000, and reduce the interest rate to 5%, payable annually on December 31. Prepare the journal entries on Vargo’s books on record the sale of the copiers, the related warranty costs, and any accrual on
December 31, 2014, 2015, 2016. Prepare the journal entries on First Trust’s books on December 31, 2014, 2015, 2016. Because December 31, 2017. Actual warranty costs (inventory) incurred in 2017 were
the carrying amount of the debt, $270,000 exceeds the total future cash flows $242,000 [$220,000 + ($11,000 X 2)], a gain and a $18,500.
loss are recognized and no interest is recorded by the debtor. Record the sale:
Vargo Corp.’s entries:
Dr. Cash 819,880
2014 Notes Payable 28,000
Cr. Sales Revenue 819,880
Gain on Restructuring of Debt 28,000
Warranty costs during 2017:
2015 Notes Payable 11,000
Cash (5% X $220,000) 11,000
Dr. Warranty Expense 18,500
Cr. Inventory 18,500
2016 Notes Payable 231,000
Cash
Accrual at December 31, 2017:
[$220,000 + (5% X $220,000)] 231,000
Dr. Warranty Expense 52,776
Cr. Warranty Liability 52,776
(206 x $346-$18,500)

Company offers a set of building blocks to customers who send in 3 UPC codes
from Wynn cereal, along with 55¢. The block sets cost Wynn $1.40 each to
purchase and 65¢ each to mail to customers. During 2014, Wynn sold
1,374,000 boxes of cereal. The company expects 30% of the UPC codes to be
sent in. During 2014, 137,400 UPC codes were redeemed. Prepare Wynn’s
December 31, 2014, adjusting entry to accrue for the outstanding liability
related to the promotion.
Dr. Premium Expense $137,400
Cr. Premium Liability
$137,400
UPC codes expected (30% of 1,374,000) 412,200
UPC codes already redeemed (137,400)
Estimated future redemptions 274,800

Cost of estimated claims outstanding (274,800/3) x ($1.4 +.65 -.55) = $137,400