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Interest of Bonds

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P16-2 (Entries for Conversion, Amortization, and Interest of Bonds) Volker Inc. issued $2,500,000 of convertible 10-year bonds on July 1, 2014. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $54,000, which is being amortized monthly on a straight-line basis. The bonds are convertible after one year into 8 shares of Volker Inc.’s $100 par value common stock for each $1,000 of bonds. On August 1, 2015, $250,000 of bonds were turned in for conversion into common stock. Interest has been accrued monthly and paid as due. At the time of conversion, any accrued interest on bonds being converted is paid in cash. Instructions Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following dates. (Round to the nearest dollar.) (a) August 1, 2015. (Assume the book value method is used.) (b) August 31, 2015. (c) December 31, 2015, including closing entries for end-of-year.

P16-4

(Stock-Based Compensation) Assume that Amazon.com has a stock-option plan for top management. Each stock option represents the right to purchase a share of Amazon $1 par value common stock in 1 Problems 933 4 4 934 Chapter 16 Dilutive Securities and Earnings per Share the future at a price equal to the fair value of the stock at the date of the grant. Amazon has 5,000 stock options outstanding, which were granted at the beginning of 2014. The following data relate to the option grant. Exercise price for options $40 Market price at grant date (January 1, 2014) $40 Fair value of options at grant date (January 1, 2014) $6 Service period 5 years Instructions (a) Prepare the journal entry(ies) for the first year of the stock-option plan. (b) Prepare the journal entry(ies) for the first year of the plan assuming that, rather than options, 700 shares of restricted stock were granted at the beginning of 2014. (c) Now assume that the market price of Amazon stock on the grant date was $45 per share. Repeat the requirements for (a) and (b). (d) Amazon would like to implement an employee stock-purchase plan for rank-and-file employees, but it would like to avoid recording expense related to this plan. Which of the following provisions must be in place for the plan to avoid recording compensation expense? (1) Substantially all employees may participate. (2) The discount from market is small (less than 5%). (3) The plan offers no substantive option feature. (4) There is no preferred stock outstanding

P16-6

(Basic EPS: Two-Year Presentation) Melton Corporation is preparing the comparative financial statements for the annual report to its shareholders for fiscal years ended May 31, 2014, and May 31, 2015. The income from operations for each year was $1,800,000 and $2,500,000, respectively. In both years, the company incurred a 10% interest expense on $2,400,000 of debt, an obligation that requires interest-only payments for 5 years. The company experienced a loss of $600,000 from a fire in its Scotsland facility in February 2015, which was determined to be an extraordinary loss. The company uses a 40% effective tax rate for income taxes. The capital structure of Melton Corporation on June 1, 2013, consisted of 1 million shares of common stock outstanding and 20,000 shares of $50 par value, 6%, cumulative preferred stock. There were no preferred dividends in arrears, and the company had not issued any convertible securities, options, or warrants. On October 1, 2013, Melton sold an additional 500,000 shares of the common stock at $20 per share. Melton distributed a 20% stock dividend on the common shares outstanding on January 1, 2014. On December 1, 2014, Melton was able to sell an additional 800,000 shares of the common stock at $22 per share. These were the only common stock transactions that occurred during the two fiscal years. Instructions (a) Identify whether the capital structure at Melton Corporation is a simple or complex capital structure, and explain why. (b) Determine the weighted-average number of shares that Melton Corporation would use in calculating earnings per share for the fiscal year ended: (1) May 31, 2014. (2) May 31, 2015. (c) Prepare, in good form, a comparative income statement, beginning with income from operations, for Melton Corporation for the fiscal years ended May 31, 2014, and May 31, 2015. This statement will be included in Melton’s annual report and should display the appropriate earnings per share presentations.

 

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Interest of Bonds was first posted on August 29, 2019 at 9:53 am.
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Interest of Bonds was first posted on August 29, 2019 at 9:59 am.
©2019 "Academicheroes.com". Use of this feed is for personal non-commercial use only. If you are not reading this article in your feed reader, then the site is guilty of copyright infringement. Please contact me at admin@Academicheroes.com.com

 
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