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Baruch College – CUNY

Stan Ross Department of Accountancy

Accountancy 3100 - Section TR74 – A

Fall 2003 – Prof Jan Sweeney

Quiz2 - Solution

Q1(12 points).
(a)     Cash………………………………………………………………$5,126,000
                     Bonds Payable………………………………………………..                               $5,000,000
                     Premium on Bonds Payable…………………………………                       26,000

                     Interest Payable……………………………………………...                   100,000

 

(b)     Interest Expense ...................................................................................      198,000

         Interest Payable…………………………………………………...      100,000

         Premium on Bonds Payable ......................................................................          2,000

                     Cash .....................................................................................................                           300,000

        

                     Premium ($5,026,000 – 5,000,000)      $ 26,000 =  $500 per month

                     Months remaining                                      52

                     Premium amortized (4 Χ $500)           $2,000

           

NOTE also acceptable

         Interest Expense ...................................................................................      198,000

         Premium on Bonds Payable ......................................................................          2,000

                     Interest Payable  ....................................................................................                           200,000

           

(b)     Bonds Payable ..................................................................................   2,500,000

         Premium on Bonds Payable ....................................................................        10,500

                     Common Stock (21,000 Χ $15).............................................................                           210,000

                     Paid-in Capital in Excess of Par .............................................................                        2,300,500

 

                     Premium                                              $26,000

                     Less premium amortized                         5,000                     

                        Premium retired                                  $21,000/2 =$10,500

 
Q 2(10 points).

1.  1/1/03     No entry necessary.

 

2.  2/1/03     No entry necessary.

     12/31/03   and 12/31/04

         Compensation Expense ......................................................................   1,550,000

                     Paid-in Capital—Stock Options .............................................................                        1,550,000

3. 2/1/05

         Cash (4 Χ 10,000 Χ $20) ...................................................................      800,000

         Paid-in Capital—Stock Options ($3,100,000 Χ 4/5) ..........................   2,480,000

                     Common Stock .....................................................................................                           400,000

                     Paid-in Capital in Excess of Par .............................................................                        2,880,000

 

         Paid-in Capital—Stock Options ............................................................      620,000

                     Paid-in Capital from Expired Stock Options ...........................................                           620,000

 

Solution 3 (8 points).

                         Increase                                                   Months                 Split

                      (Decrease)            Outstanding                 Outstanding          Adjust                     Shares

Jan. 1                       —              1,000,000                       2/12                         2                 333,332

March 1          500,000              1,500,000                       4/12                         2              1,000,000

July 1           1,500,000              3,000,000                       4/12                                         1,000,000

Nov. 1           (400,000)             2,600,000                       2/12                                            433,333

                                                                                                                                         2,766,665

 

Solution 4(10 points).

                                                Net income                       $600,000

(a) Earnings per share: ———————          =  ———— = $1.20

                                                Outstanding shares             500,000

 

                                                                                                                                                                         Net income + Interest after taxes

(b) Earnings per share fully diluted:                            ———————————————

                                                                                    Assumed outstanding shares

 

                                                             $600,000 + $210,000

            ($300,000  Χ .7 = $210,000);  —————————— = $1.35

                                                               500,000 + 100,000

 

(c) The bonds are antidilutive, and only earnings per common share outstanding of $1.20 should be reported.

                                                  

 

Baruch College – CUNY

                                                                 Stan Ross Department of Accountancy

                                                                 Accountancy 3100 - Section TR74 – B

                                                                        Fall 2003 – Prof Jan Sweeney

Quiz2 - Solution

Q1(12 points).
(a)     Cash………………………………………………………………$4,093,000
                     Bonds Payable………………………………………………..                               $4,000,000
                     Premium on Bonds Payable…………………………………                       13,000

                     Interest Payable……………………………………………...                    80,000

 

(b)     Interest Expense ...................................................................................      159,000

         Interest Payable.......................................................................................        80,000

         Premium on Bonds Payable ......................................................................          1,000

                     Cash .....................................................................................................                           240,000

        

                     Premium ($4,013,000 – 4,000,000)      $ 13,000 =  $250 per month

                     Months remaining                                      52

                     Premium amortized (4 Χ $250)           $1,000

 

NOTE also acceptable

         Interest Expense ...................................................................................      159,000

         Premium on Bonds Payable ......................................................................          1,000

                     Interest Payable  ....................................................................................                           160,000

           

 

(b)     Bonds Payable ..................................................................................   1,500,000

         Premium on Bonds Payable ......................................................................          5,250

                     Common Stock (21,000 Χ $15).............................................................                           315,000

                     Paid-in Capital in Excess of Par .............................................................                        1,190,250

 

                     Premium                                              $13,000

                     Less premium amortized                         2,500                     

                        Premium retired                                  $11,500/2 =$5,250

 
Q 2(10 points).

1.  1/1/03     No entry necessary.

 

2.  2/1/03     No entry necessary.

     12/31/03   and 12/31/04

         Compensation Expense ....................................................................   1,050,000

                     Paid-in Capital—Stock Options .............................................................                        1,050,000

3. 2/1/05

         Cash (4 Χ 10,000 Χ $3) ....................................................................   1,200,000

         Paid-in Capital—Stock Options ($2,100,000 Χ 4/5) ..........................   1,680,000

                     Common Stock .....................................................................................                             40,000

                     Paid-in Capital in Excess of Par .............................................................                        2,840,000

 

         Paid-in Capital—Stock Options ............................................................      420,000

                     Paid-in Capital from Expired Stock Options ...........................................                           420,000

 

Solution 3 (8 points).

                         Increase                                                   Months                 Split

                      (Decrease)            Outstanding                 Outstanding          Adjust                     Shares

Jan. 1                       —                 900,000                       2/12                         2                 300,000

March 1          100,000              1,000,000                       4/12                         2                 666,666

July 1           1,000,000              2,000,000                       3/12                                            500,000

Oct. 1            (300,000)             1,700,000                       3/12                                            425,000

                                                                                                                                         1,891,666

 

Solution 4(10 points).

                                                Net income                       $1,200,000

(a) Earnings per share: ————————— = ———— = $1.20

                                                Outstanding shares             1,000,000

 

                                                                                                                                                                         Net income + Interest after taxes

(b) Earnings per share fully diluted:                            ———————————————

                                                                                    Assumed outstanding shares

 

                                                             $1,200,000 + $490,000

            ($700,000  Χ .7 = $490,000);  —————————— = $1.35

                                                               1,000,000 + 250,000

 

(c) The bonds are antidilutive, and only earnings per common share outstanding of $1.20 should be reported.

 

Baruch College – CUNY

                                                                   Stan Ross Department of Accountancy

                                                                  Accountancy 3100 - Section TR74 – C

                                                                          Fall 2003 – Prof Jan Sweeney

Quiz2 - Solution

Q1(12 points).
(a)     Cash………………………………………………………………$6,146,000
                     Bonds Payable………………………………………………..                               $6,000,000
                     Premium on Bonds Payable…………………………………                       26,000

                     Interest Payable……………………………………………...                   120,000

 

(b)     Interest Expense ...................................................................................      238,000

         Interest Payable................................................................................      120,000

         Premium on Bonds Payable ......................................................................          2,000

                     Cash .....................................................................................................                           360,000

        

                     Premium ($6,026,000 – 5,000,000)     $ 26,000 =  $500 per month

                     Months remaining                                      52

                     Premium amortized (4 Χ $500)           $2,000

 

NOTE also acceptable

         Interest Expense ...................................................................................      238,000

         Premium on Bonds Payable ......................................................................          2,000

                     Interest Payable  ....................................................................................                           240,000

           

 

(b)     Bonds Payable ..................................................................................   3,000,000

         Premium on Bonds Payable ....................................................................        10,500

                     Common Stock (20,000 Χ $5)...............................................................                           100,000

                     Paid-in Capital in Excess of Par .............................................................                        2,909,500

 

                     Premium                                              $26,000

                     Less premium amortized                         5,000                     

                        Premium retired                                  $21,000/2 =$10,500

 
Q 2(10 points).

1.  1/1/03     No entry necessary.

 

2.  2/1/03     No entry necessary.

     12/31/03   and 12/31/04

         Compensation Expense ......................................................................   2,050,000

                     Paid-in Capital—Stock Options .............................................................                        2,050,000

3. 2/1/05

         Cash (4 Χ 10,000 Χ $20) ...................................................................      800,000

         Paid-in Capital—Stock Options ($4,100,000 Χ 4/5) ..........................   3,280,000

                     Common Stock .....................................................................................                             40,000

                     Paid-in Capital in Excess of Par .............................................................                        4,040,000

 

         Paid-in Capital—Stock Options ............................................................      820,000

                     Paid-in Capital from Expired Stock Options ...........................................                           820,000

 

Solution 3 (8 points).

                         Increase                                                   Months                 Split

                      (Decrease)            Outstanding                 Outstanding          Adjust                     Shares

Jan. 1                       —                 800,000                       3/12                         2                 400,000

April 1             200,000              1,000,000                       2/12                         2                 333,332

June 1          1,000,000              2,000,000                       4/12                                            666,667

Oct. 1            (300,000)             1,700,000                       3/12                                            425,000

                                                                                                                                         1,724,999

 

Solution 4(10 points).

                                                Net income                   $1,200,000

(a) Earnings per share: ———————  = ————            = $1.20

                                                Oustanding shares       1,000,000

 

                                                                                                                                                                         Net income + Interest after taxes

(b) Earnings per share fully diluted:                            ———————————————

                                                                                    Assumed outstanding shares

 

                                                             $1,200,000 + $420,000

            ($600,000  Χ .7 = $420,000);  —————————— = $1.35

                                                               1,000,000 + 200,000

 

(c) The bonds are antidilutive, and onlyearnings per common share outstanding of $1.20 should be reported.

 

Baruch College – CUNY

                                                                  Stan Ross Department of Accountancy

                                                                  Accountancy 3100 - Section TR74 – D

                                                                         Fall 2003 – Prof Jan Sweeney

Quiz2 - Solution

Q1(12 points).
(a)     Cash………………………………………………………………$3,073,000
                     Bonds Payable………………………………………………..                               $3,000,000
                     Premium on Bonds Payable…………………………………                       13,000

                     Interest Expense……………………………………………...                    60,000

 

(b)     Interest Expense ...................................................................................      179,000

         Premium on Bonds Payable ......................................................................          1,000

                     Cash .....................................................................................................                           180,000

        

                     Premium ($3,013,000 – 3,000,000)      $ 13,000 =  $250 per month

                     Months remaining                                      52

                     Premium amortized (4 Χ $250)           $1,000

 

(b)     Bonds Payable ..................................................................................   1,500,000

         Premium on Bonds Payable ......................................................................          5,250

                     Common Stock (21,000 Χ $15).............................................................                           315,000

                     Paid-in Capital in Excess of Par .............................................................                        1,190,250

 

                     Premium                                              $13,000

                     Less premium amortized                         2,500                     

                        Premium retired                                  $11,500/2 =$5,250

 
Q 2(10 points).

1.  1/1/03     No entry necessary.

 

2.  2/1/03     No entry necessary.

     12/31/03   and 12/31/04

         Compensation Expense .........................................................................      550,000

                     Paid-in Capital—Stock Options .............................................................                           550,000

3. 2/1/05

         Cash (4 Χ 10,000 Χ $40) ..................................................................   1,600,000

         Paid-in Capital—Stock Options ($1,100,000 Χ 4/5) .............................      880,000

                     Common Stock .....................................................................................                           400,000

                     Paid-in Capital in Excess of Par .............................................................                        2,080,000

 

         Paid-in Capital—Stock Options ............................................................      220,000

                     Paid-in Capital from Expired Stock Options ...........................................                           220,000

 

Solution 3 (8 points).

                         Increase                                                   Months                 Split

                      (Decrease)            Outstanding                 Outstanding          Adjust                     Shares

Jan. 1                       —                 800,000                       2/12                         2                 266,666

March 1          200,000              1,000,000                       4/12                         2                 666,666

July 1           1,000,000              2,000,000                       3/12                                            500,000

Oct. 1            (400,000)             1,600,000                       3/12                                            400,000

                                                                                                                                         1,833,332

 

Solution 4(10 points).

                                                Net income                       $600,000

(a) Earnings per share: ————————— = ———— = $1.20

                                                Outstanding shares             500,000

 

                                                                                                                                                                         Net income + Interest after taxes

(b) Earnings per share fully diluted:                            ———————————————

                                                                                    Assumed outstanding shares

 

                                                             $600,000 + $245,000

            ($350,000  Χ .7 = $245,000);  —————————— = $1.35

                                                               500,000 + 125,000

 

(c) The bonds are antidilutive, and only earnings per common share outstanding of $1.20 should be reported.