Using Your Judgment 16-4 On January 1, 2013, Garner issued 10-year, $200,000 fac
ID: 2427873 • Letter: U
Question
Using Your Judgment 16-4
On January 1, 2013, Garner issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2014. (Ignore all tax effects.)
Date
Account Titles and Explanation
Debit
Credit
SHOW LIST OF ACCOUNTS
SHOW LIST OF ACCOUNTS
Date
Account Titles and Explanation
Debit
Credit
Using Your Judgment 16-4
On January 1, 2013, Garner issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2014. (Ignore all tax effects.)
Explanation / Answer
1
Journal entry on January 1, 2013, to record the issuance of the bonds:
Date
Account Titles and Explanation
Debit
Credit
Jan. 31, 2013
Cash
$ 200,000
Bonds Payable
$ 200,000
(Being bonds 200 Bonds issued at par $1,000)
2
Calculation of Basic Earning per share :
Year 2014
Year 2013
Net income (A)
$ 26,000
$ 22,000
Number of Common shares outstanding (B)
10,000
10,000
Basic Earning per share = A/B
$ 2.60
$ 2.20
3
Calculation of Diluted Earning per share :
Year 2014
Year 2013
Net income (A)
$ 26,000
$ 22,000
Number of Common shares outstanding
10,000
10,000
Add: Number of shares to be issued In conversion of bonds = 200 Bonds *30 shares =
6,000
6,000
Total Shares (B)
16,000
16,000
Dilutive Earning per share = A/B
$ 1.63
$ 1.38
4
Journal entry to record the conversion:
Date
Account Titles and Explanation
Debit
Credit
Jun. 30, 2015
Bonds Payable (200 Bonds*75%) = 150 Bonds *$1000
$ 150,000
Loss on conversion (9000+135000+7500-150000)
$ 1,500
Common Stock (150 bonds *30 Shares *$2)
$ 9,000
Paid in capital in excess of par (150 Bonds * 30 Shares * ($32-2)
$ 135,000
Cash (150 bonds * $50)
$ 7,500
(Being bonds converted and common stock issued and cash paid)
1
Journal entry on January 1, 2013, to record the issuance of the bonds:
Date
Account Titles and Explanation
Debit
Credit
Jan. 31, 2013
Cash
$ 200,000
Bonds Payable
$ 200,000
(Being bonds 200 Bonds issued at par $1,000)
2
Calculation of Basic Earning per share :
Year 2014
Year 2013
Net income (A)
$ 26,000
$ 22,000
Number of Common shares outstanding (B)
10,000
10,000
Basic Earning per share = A/B
$ 2.60
$ 2.20
3
Calculation of Diluted Earning per share :
Year 2014
Year 2013
Net income (A)
$ 26,000
$ 22,000
Number of Common shares outstanding
10,000
10,000
Add: Number of shares to be issued In conversion of bonds = 200 Bonds *30 shares =
6,000
6,000
Total Shares (B)
16,000
16,000
Dilutive Earning per share = A/B
$ 1.63
$ 1.38
4
Journal entry to record the conversion:
Date
Account Titles and Explanation
Debit
Credit
Jun. 30, 2015
Bonds Payable (200 Bonds*75%) = 150 Bonds *$1000
$ 150,000
Loss on conversion (9000+135000+7500-150000)
$ 1,500
Common Stock (150 bonds *30 Shares *$2)
$ 9,000
Paid in capital in excess of par (150 Bonds * 30 Shares * ($32-2)
$ 135,000
Cash (150 bonds * $50)
$ 7,500
(Being bonds converted and common stock issued and cash paid)
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