Question

1. Concord Corporation had two issues of securities outstanding: common stock and an 9% convertible bond issue in the face amount of $15150000. Interest payment dates of the bond issue are June 30th and December 31st. The conversion clause in the bond indenture entitles the bondholders to receive forty shares of $20 par value common stock in exchange for each $1000 bond. On June 30, 2021, the holders of $2272500 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1200 per bond and the market price of the common stock was $35. The total unamortized bond discount at the date of conversion was $950000. In applying the book value method, what amount should Concord credit to the account "paid-in capital in excess of par," as a result of this conversion?

a. $ 681750. b. $1363500. c. $ 312000.d. $ 151500.

2. Waterway Industries had 306000 shares of common stock issued and outstanding at December 31, 2020. No common stock was issued during 2021. On January 1, 2021, Waterway issued 190000 shares of nonconvertible preferred stock. During 2021, Waterway declared and paid $91000 cash dividends on the common stock and $76000 on the preferred stock. Net income for the year ended December 31, 2021 was $623000. What should be Waterway's 2021 earnings per common share?

a. $1.49

b. $1.74

c. $2.04

d. $1.79

3. Sunland Company had 1570000 shares of common stock issued and outstanding at December 31, 2020. On July 1, 2021 an additional 1259000 shares were issued for cash. Sunland also had stock options outstanding at the beginning and end of 2021 which allow the holders to purchase 373000 shares of common stock at $15 per share. The average market price of Sunland's common stock was $20 during 2021. What is the number of shares that should be used in computing diluted earnings per share for the year ended December 31, 2021?

a. 2292750

b. 2922250

c. 2479250

d. 2311500

4. Sheridan Company had 1,000,000 shares of common stock issued and outstanding at December 31, 2020. On July 1, 2021 an additional 1,000,000 shares were issued for cash. Sheridan also had stock options outstanding at the beginning and end of 2021 which allow the holders to purchase 308000 shares of common stock at $21 per share. The average market price of Sheridan’s common stock was $28 during 2021. The number of shares to be used in computing diluted earnings per share for 2021 is:

a. 1577000

b 2077000

c. 1757000

d. 2257000

5. On January 2, 2021, Swifty Corporation issued at par $292000 of 6% convertible bonds. Each $1,000 bond is convertible into 60 shares. No bonds were converted during 2021. Swifty had 106000 shares of common stock outstanding during 2021. Swifty's 2021 net income was $150000 and the income tax rate was 35%. Swifty's diluted earnings per share for 2021 would be (rounded to the nearest penny)

a. $1.20.

b. $1.31.

c. $1.36.

d. $1.42.

6. Sunland Company had 208000 shares of common stock, 19800 shares of convertible preferred stock, and $1507000 of 4% convertible bonds outstanding during 2021. The preferred stock is convertible into 39700 shares of common stock. During 2021, Sunland paid dividends of $1.00 per share on the common stock and $4 per share on the preferred stock. Each $1,000 bond is convertible into 30 shares of common stock. The net income for 2021 was $610000 and the income tax rate was 30%.

Basic earnings per share for 2021 is (rounded to the nearest penny)

a. $2.16.

b. $2.37.

c. $2.46.

d. $2.55.

7. At December 31, 2020, Coronado Industries had 801000 shares of common stock outstanding. On October 1, 2021, an additional 154000 shares of common stock were issued. In addition, Coronado had $10300000 of 5% convertible bonds outstanding at December 31, 2020, which are convertible into 366000 shares of common stock. No bonds were converted into common stock in 2021. The net income for the year ended December 31, 2021, was $2520000. Assuming the income tax rate was 35%, the diluted earnings per share for the year ended December 31, 2021, should be (rounded to the nearest penny)

a. $2.37.

b. $3.40.

c. $2.09.

d. $2.52.

8. On December 31, 2020, Oriole Company granted some of its executives options to purchase 63500 shares of the company's $10 par common stock at an option price of $50 per share. The options become exercisable on January 1, 2021, and represent compensation for executives' services over a three-year period beginning January 1, 2021. The Black-Scholes option pricing model determines total compensation expense to be $367500. At December 31, 2021, none of the executives had exercised their options. What is the impact on Oriole's net income for the year ended December 31, 2021 as a result of this transaction under the fair value method?

a. $122500 decrease

b. $367500 decrease

c. $122500 increase

d. $0

9. On January 1, 2021, Oriole Company granted Tim Telfer, an employee, an option to buy 5400 shares of Oriole Co. stock for $25 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $35700. Telfer exercised his option on September 1, 2021, and sold his 5400 shares on December 1, 2021. Quoted market prices of Oriole Co. stock during 2021 were

January 1		$24 per share
September 1		$29 per share
December 1		$33 per share

The service period is for three years beginning January 1, 2021. As a result of the option granted to Telfer, using the fair value method, Oriole should recognize compensation expense for 2021 on its books in the amount of

a. $43200.

b. $11900.

c. $7500.

d. $35700.

10. In order to retain certain key executives, Crane Company granted them incentive stock options on December 31, 2020. 140000 options were granted at an option price of $35 per share. Market prices of the stock were as follows:

December 31, 2021	$44 per share
December 31, 2022	49 per share

The options were granted as compensation for executives’ services to be rendered over a two-year period beginning January 1, 2021. The Black-Scholes option pricing model determines total compensation expense to be $1490000. What amount of compensation expense should Crane recognize as a result of this plan for the year ended December 31, 2021 under the fair value method?

a. $1490000.

b. $ 745000.

c. $2615000.

d. $1640000.

Answer 1

ANSWER

1)

Correct Option is(C)=$312,000

Applying the book valve method:

Common stock =2,272,500 /1000 x 40 x 20 =$1,818,000

Unamortized discount =2,272,500/15150000 x 950000 =$142,500

amount should Concord credit to the account "paid-in capital in excess of par," as a result of this conversion =2,272,500 - 1,818,000 - 142,500 =$312,000

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