Acc423 Intermediate Accounting: Week 2 (E15-13, P15-1, E16-20, P16-7) - March 2014 Version

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Acc423 Intermediate Accounting
Week 2 Individual Assignment (E15-13, P15-1, E16-20, P16-7) - March 2014 Version

E15-13 (Stock Split and Stock Dividend)
The common stock of Warner Inc. is currently selling at $119 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $10; book value is $80 per share. 5.16 million shares are issued and outstanding.

Prepare the necessary journal entries assuming the following. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.)
a. The board votes a 2-for-1 stock split.
b. The board votes a 100% stock dividend.

P15-1 (Equity Transactions and Statement Preparation)
On January 5, 2012, Phelps Corporation received a charter granting the right to issue 5,400 shares of $103 par value, 8% cumulative and nonparticipating preferred stock, and 54,700 shares of $11 par value common stock. It then completed these transactions.
Jan. 11 Issued 21,990 shares of common stock at $17 per share.
Feb. 1 Issued to Sanchez Corp. 4,500 shares of preferred stock for the following assets: equipment with a fair value of $57,740; a factory building with a fair market value of $174,600; and land with an appraised value of $329,600.
Jul 29 Purchased 1,910 shares of common stock at $18 per share. (Use cost method.)
Aug. 10 Sold the 1,910 treasury shares at $12 per share.
Dec. 31 Declared a $0.30 per share cash dividend on the common stock and declared the preferred dividend.
Dec. 31 Closed the Income Summary account. There was a $184,120 net income.

a. Record the journal entries for the transactions listed above. (List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2.)
b. Prepare the stockholders' equity section of Phelps Corporation's balance sheet as of December 31, 2012.

E16-20 (EPS: Simple Capital Structure)
On January 1, 2010, Bailey Industries had stock outstanding as follows.
6% Cumulative preferred stock $111 par value
issued and outstanding 11,000 shares 1,221,000
Common stock, $10 par value, issued and
outstanding 196,800 shares 1,968,000
To acquire the net assets of three smaller companies, Bailey authorized the issuance of an additional 283,200 common shares. The acquisitions took place as follows.
Date of Acquisition Shares Issued
Company A April 1, 2012 115,200
Company B July 1, 2012 133,200
Company C October 1, 2012 34,800
On May 14, 2012, Bailey realized a $157,200 (before taxes) insurance gain on the expropriation of investments originally purchased in 2000.
On December 31, 2012, Bailey recorded net income of $316,800 before tax and exclusive of the gain.
Assuming a 44% tax rate, compute the earnings per share data that should appear on the financial statements of Bailey Industries as of December 31, 2012. Assume that the expropriation is extraordinary. (Round answer to 2 decimal places, e.g. 0.25.)

P16-7 (Computation of Basic and Diluted EPS)
Charles Austin of the controller's office of Thompson Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending December 31, 2013. Austin has compiled the information listed below.
1. The company is authorized to issue 8,222,400 shares of $10 par value common stock. As of December 31, 2012, 2,055,600 shares had been issued and were outstanding.
2. The per share market prices of the common stock on selected dates were as follows.
Price per Share
1-Jul-12 20.00
1-Jan-13 21.00
1-Apr-13 25.00
1-Jul-13 11.00
1-Aug-13 10.50
1-Nov-13 9.00
31-Dec-13 10.00
3. A total of 776,400 shares of an authorized 1,262,400 shares of convertible preferred stock had been issued on July 1, 2012. The stock was issued at its par value of $25, and it has a cumulative dividend of $3 per share. The stock is convertible into common stock at the rate of one share of convertible preferred for one share of common. The rate of conversion is to be automatically adjusted for stock splits and stock dividends. Dividends are paid quarterly on September 30, December 31, March 31, and June 30.
4. Thompson Corporation is subject to a 40% income tax rate.
5. The after-tax net income for the year ended December 31, 2013 was $11,670,000.

The following specific activities took place during 2013.
1. January 1-A 5% common stock dividend was issued. The dividend had been declared on December 1, 2012, to all stockholders of record on December 29, 2012.
2. April 1-A total of 429,600 shares of the $3 convertible preferred stock was converted into common stock. The company issued new common stock and retired the preferred stock. This was the only conversion of the preferred stock during 2013.
3. July 1-A 2-for-1 split of the common stock became effective on this date. The board of directors had authorized the split on June 1.
4. August 1-A total of 324,000 shares of common stock were issued to acquire a factory building.
5. November 1-A total of 30,300 shares of common stock were purchased on the open market at $9 per share. These shares were to be held as treasury stock and were still in the treasury as of December 31, 2013.
6. Common stock cash dividends-Cash dividends to common stockholders were declared and paid as follows.
April 15-$0.30 per share
October 15-$0.20 per share
7. Preferred stock cash dividends-Cash dividends to preferred stockholders were declared and paid as scheduled.

a. Determine the number of shares used to compute basic earnings per share for the year ended December 31, 2013.
b. Determine the number of shares used to compute diluted earnings per share for the year ended December 31, 2013.
c. Compute the adjusted net income to be used as the numerator in the basic earnings per share calculation for the year ended December 31, 2013.
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