Question

            On July 1, 2020, Billie Corporation issues $10,000,000 of 5% bonds at 103.2, with a maturity date of June 30, 2030. Eight detachable stock warrants are included with each $1,000 bond and each warrant entitles the holder to purchase one share of Billie’s common stock, $0.01 par value, for $60. On July 1, 2020, the fair value of Billie’s common stock is $48.50 per share, the new bonds trade separately at a price of 99.84, and the warrants trade at $5.20 per warrant.

Required: Prepare the journal entry to record the issuance of these securities on July 1, 2020.

Bon

2.      On January 1, 2019, Finneas Corporation has 2,400,000 shares of common stock outstanding. On April 1, 2019, the corporation issues 480,000 new shares to raise additional capital.

In addition to common shares, Finneas Corporation had 100,000 shares of $100 8% cumulative preferred shares outstanding, and $6,000,000 of 4% convertible bonds outstanding. Each $1,000 bond is convertible into 10 shares of common stock. The preferred shares are not convertible.

Finneas Corporation has 400,000 options outstanding (all issued prior to January 1, 2019). 250,000 of the options have an exercise price of $86 and expire December 31, 2025. The other 150,000 have an exercise price of $30 and expire June 30, 2021.

The average price of common stock for 2019 was $72 and the stock price at December 31, 2019 is $90.

For 2019, Finneas Corporation reported a net income (after tax) of $10,846,400. Finneas Corporation’s tax rate is 30%. Finneas declared and paid common stock dividends of $4,200,000 and preferred stock dividends of $800,000 during 2019.

Required:

(i) Compute the weighted average number of shares used to compute basic earnings per share for 2019.

(ii) compute basic earnings per share for 2019.  

(iii) Compute diluted earnings per share for 2019.  

Answer 1

Debit Bank A/c $10000000

Credit 5% Bond $10000000

(96899.22 bonds issued (10000000/103.2) )

No of stock warrant- (10000000/1000) *8= 80000

As on July 1 no other entry would be done. At the year end the change in fair value to be accounted for.