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 × $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 × $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 × 10,000 × $20) ................................................................... 800,000

Paid-in Capital—Stock Options ($3,100,000 × 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 × .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 × $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 × $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 × 10,000 × $3) .................................................................... 1,200,000

Paid-in Capital—Stock Options ($2,100,000 × 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 × .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 × $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 × $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 × 10,000 × $20) ................................................................... 800,000

Paid-in Capital—Stock Options ($4,100,000 × 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 × .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 × $250) $1,000

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

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

Common Stock (21,000 × $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 × 10,000 × $40) .................................................................. 1,600,000

Paid-in Capital—Stock Options ($1,100,000 × 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 × .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.