Finance Questions

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Question 1

Lump sum issuance of stock.

Landon Corporation has issued 2,000 shares of common stock and 400 shares of preferred stock for a lump sum of $72,000 cash.

Instructions

(a)          Give the entry for the issuance assuming the par value of the common was $5 and the market value $30, and the par value of the preferred was $40 and the market value $50. (Each valuation is on a per share basis and there are ready markets for each stock.)

(b)          Give the entry for the issuance assuming the same facts as (a) above except the preferred stock has no ready market and the common stock has a market value of $25 per share.

Question 2

Treasury stock.

For numerous reasons, a corporation may reacquire shares of its own capital stock. When a company purchases treasury stock, it usually accounts for the stock using the cost method.

Instructions

Explain how a company would account for each of the following:

1. Purchase of shares at a price less than par value.

2. Subsequent resale of treasury shares at a price less than purchase price, but more than par value.

3. Subsequent resale of treasury shares at a price greater than both purchase price and par value.

4. Effect on net income.

Question 3

Dividends on preferred stock.

The stockholders’ equity section of Knott Corporation shows the following on December 31, 2007:

instructions

Assuming that all of the company’s retained earnings are to be paid out in dividends on 12/31/07 and that preferred dividends were last paid on 12/31/05, show how much the preferred and common stockholders should receive if the preferred stock is cumulative and fully participating.

Question 4

(EPS with Convertible Bonds and Preferred Stock)

On January 1, 2007, Crocker Company issued 10-year, $2,400,000 face value, 10% bonds, at par. Each $1,000 bond is convertible into 16 shares of Crocker common stock. Crocker’s net income in 2007 was $300,000, and its tax rate was 40%. The company had 100,000 shares of common stock outstanding throughout 2007. None of the bonds were converted in 2007.

Instructions

(Round answers to 2 decimal places.)

a.)    Compute diluted earnings per share for 2007.

b.)    compute diluted earnings per share for 2007 using the same facts as those assumed for part (a), except that $1,200,000 of 10% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 7 shares of Crocker common stock.

Question 5

Basic and diluted EPS.

The following information was taken from the books and records of Simonic, Inc.:

Instructions

Compute basic and diluted earnings per share.

Answer available.

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