202) On December 31, 2017, Vitners Company had outstanding 400,000 shares of common
stock and 40,000 shares of 8% cumulative preferred stock (par $10).
February 28, 2018, issued an additional 36,000 shares of common stock
September 1, 2018, 9,000 shares were retired.
A 10% stock dividend was declared and distributed on July 1, 2018.
At year-end, there were fully vested incentive stock options outstanding for 30,000 shares of
common stock (adjusted for the stock dividend). The exercise price was $18. The market price
of the common stock averaged $20 during the year. Also outstanding were $1,000,000 face
amount of 10% convertible bonds issued in 2015 and convertible into 50,000 common shares
(adjusted for the stock dividend). Net income was $900,000. The tax rate for the year was 40%.
Required:
Compute basic and diluted EPS (rounded to 2 decimal places) for the year ended December 31,
2018.
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203) On December 31, 2017, Merlin Company had outstanding 400,000 shares of common
stock and 40,000 shares of 8% cumulative preferred stock (par $10). On February 28, 2018,
Merlin issued an additional 36,000 shares of common stock. A 10% stock dividend was declared
and distributed on July 1, 2018. On September 1, 2018, 9,000 shares were retired. At year-end,
there were fully vested incentive stock options outstanding for 30,000 shares of common stock
(adjusted for the stock dividend). The exercise price was $18. The market price of the common
stock averaged $20 during the year. Also outstanding were $1,000,000 face amount of 10%
convertible bonds issued in 2015 and convertible into 50,000 common shares (adjusted for the
stock dividend). Net income was $900,000. The tax rate for the year was 40%.
Required:
Compute basic and diluted EPS (rounded to 2 decimal places) for the year ended December 31,
2018.
204) Rice Inc. had 420 million shares of common stock and 1 million shares of 6%, $200 par,
cumulative preferred stock outstanding at the end of 2017 and 2018. No dividends were declared
or paid on either class of stock in either year. Net income for 2018 was $398.4 million. The
company’s tax rate is 30%.
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Required:
Compute basic earnings per share for the year ended December 31, 2018.
205) On December 31, 2017, Witherspoon Services had 800,000 shares of common stock and
200,000 shares of 5.5%, noncumulative, nonconvertible $10 par preferred stock issued and
outstanding. On March 2, 2018, Witherspoon sold 120,000 common shares. In keeping with its
long-term share repurchase plan, 30,000 shares were retired on August 31. Witherspoon
distributed a 10% common stock dividend on June 3. Witherspoon’s net income for the year
ended December 31, 2016, was $600,000. The company paid cash dividends of $110,000 to
preferred shareholders on December 20, 2018. The income tax rate is 40%.
Required:
Compute Witherspoon’s earnings per share for the year ended December 31, 2018.
206) At December 31, 2018, MedX Corporation had outstanding 200,000 shares of common
stock. Also outstanding were 120,000 shares of preferred stock convertible into 64,000 common
shares and $1,800,000 of 10% bonds convertible into 27,000 common shares. MedX’s net
income for the year ended December 31, 2018, is $1,040,000. The income tax rate is 40%.
MedX paid dividends of $2 per share on its preferred stock during 2018.
Required:
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Compute basic and diluted earnings per share for the year ended December 31, 2018,
considering possible antidilutive effects.
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207) Paul Company had 100,000 shares of common stock outstanding on January 1, 2018. On
September 30, 2018, Paul sold 48,000 shares of common stock for cash. Paul also had 10,000
shares of convertible preferred stock outstanding throughout 2018. The preferred stock is $100
par, 6%, and is convertible into 3 shares of common for each share of preferred. Paul also had
500, 8%, convertible bonds outstanding throughout 2018. Each $1,000 bond is convertible into
30 shares of common stock. The bonds sold originally at face value. Reported net income for
2018 was $300,000 with a 40% tax rate. Common shareholders received $2 per share dividends
after preferred dividends were paid in 2018.
Required:
Compute basic and diluted earnings per share (rounded to 2 decimal places) for 2018.
208) Woolery, Inc. had 50,000 shares of common stock outstanding at January 1, 2018. On
March 31, 2018, an additional 12,000 shares were sold for cash. Woolery also had $4,000,000 of
6% convertible bonds outstanding throughout the year. The bonds are convertible into 40,000
shares of common stock. Net income for the year was $350,000. The tax rate is 35%.
Required:
Compute basic and diluted earnings per share (rounded to 2 decimal places) for the year ended
December 31, 2018.
209) During 2018, Quattro entered into the following transactions relating to shareholders’
equity. The corporation was authorized to issue 20 million common shares, $1 par per share.
Net income for 2018 was $110 million.
Jan. 2:
Issued 10 million common shares for cash.
Jan. 3:
Entered an agreement with the company president to issue up to 2
million additional shares of common stock in 2018 based on the
earnings of Quattro in 2018. If net income exceeds $100 million, the
president will receive 1 million shares; if net income exceeds $120
million, the president will receive 2 million shares.
Required:
Compute basic and diluted EPS for 2018.
210) On January 1, 2018, Lawson Brothers Enterprises (LBE) granted restricted stock units (RSUs)
representing 40 million of its $1 par common shares to executives, subject to forfeiture if employment is
terminated within four years. After the recipients of the RSUs satisfy the vesting requirement, the
company will distribute the shares. The common shares had a market price of $10 per share on the grant
date. At the date of grant, LBE anticipated that 5% of the recipients would leave the firm prior to vesting.
Ignore taxes.
Required:
1. Prepare the appropriate journal entry to record compensation expense on December 31, 2018.
Show calculations.
2. Prepare the appropriate journal entry to record compensation expense on December 31, 2019.
Show calculations.
3. During 2020 third year, LBE revised its estimate of forfeitures from 5% to 10%. Prepare the
appropriate journal entry to record compensation expense on December 31, 2020. Show
calculations.
4. Prepare the appropriate journal entry to record compensation expense on December 31, 2021.
Show calculations.
211) On January 1, 2018, M.T. Toombe Mausoleum granted restricted stock units (RSUs)
representing 60 million of its $1 par common shares to executives, subject to forfeiture if
employment is terminated within three years. After the recipients of the RSUs satisfy the vesting
requirement, the company will distribute the shares. The common shares had a market price of
$15 per share on the grant date. At the date of grant, Toombe anticipated that 5% of the
recipients would leave the firm prior to vesting. In 2019, 3% of the options are forfeited due to
executive turnover. Toombe chooses the option not to estimate forfeitures.
Required:
1. Prepare the appropriate journal entry to record compensation expense on December 31, 2018.
Ignore taxes.
2. Prepare the appropriate journal entry to record compensation expense on December 31, 2019.
Ignore taxes.
212) What is restricted stock? Describe how compensation expense is determined and recorded
for a restricted stock plan.
213) The tax code differentiates between qualified and nonqualified incentive plans. What are
the major differences in tax treatment between the two?