<p> Chapter 16 – Group Work Solutions</p><p>DR CR</p><p>1) Bonds Payable 200,000 Premium on Bonds Payable 4,500 Common Stock 120,000 Paid In Capital – Common Stock 84,500</p><p>DR CR</p><p>2) Preferred Stock 200,000 Paid In Capital – Preferred Stock 72,000 Common Stock 160,000 Paid In Capital – Common Stock 112,000</p><p>3) Market Value of Bonds 288,000 Market Value of Warrants 12,000 Total Market Value 300,000</p><p>(288,000/300,000) * $309,000 = $296,640 Proceeds allocated to Bonds (12,000/300,000) * $309,000 = $ 12,360 Proceeds allocated to Warrants</p><p>DR CR</p><p>Cash 309,000 Discount on Bonds Payable 3,360 Bonds Payable 300,000 Paid In Capital – Warrants 12,360</p><p>DR CR 4) a. January 1, 2012 No Entry</p><p> b. December 31, 2012</p><p>Compensation Expense 375,000 Paid In Capital – Stock Options 375,000 *$750,000/2 = $375,000 DR CR</p><p> c. December 31, 2013</p><p>Compensation Expense 375,000 Paid In Capital – Stock Options 375,000 *$750,000/2 = $375,000</p><p> d. April 16, 2014</p><p>Cash 3,500,000 Paid In Capital – Stock Options 525,000 Common Stock 700,000 Paid In Capital – Common Stock 3,325,000</p><p>70,000 * $50 = $3,500,000 (70,000/100,000) * $750,000 = $525,000 70,000 * $10 = $700,000</p><p> e. September 4, 2014</p><p>Cash 1,500,000 Paid In Capital – Stock Options 225,000 Common Stock 300,000 Paid In Capital – Common Stock 1,425,000</p><p>30,000 * $50 = $1,500,000 (30,000/100,000) * $750,000 = $225,000 30,000 * $10 = $300,000</p><p>DR CR</p><p>5) a. January 1, 2012</p><p>Unearned Compensation 236,000 Common Stock 30,000 Paid In Capital – Common Stock 206,000 DR CR</p><p> b. December 31, 2012</p><p>Compensation Expense 47,200 Unearned Compensation 47,200</p><p>$236,000/5 = $47,200</p><p> c. December 31, 2013</p><p>Compensation Expense 47,200 Unearned Compensation 47,200</p><p>$236,000/5 = $47,200</p><p> d. June 10, 2014</p><p>Common Stock 30,000 Paid In Capital – Common Stock 206,000 Unearned Compensation 141,600 Compensation Expense 94,400</p><p>6. a. January 1 250,000 * 2/12 * 1.4 * 2 = 116,667</p><p>Issued 80,000 March 1 330,000 * 2/12 * 1.4 * 2 = 154,000</p><p>Acquired (30,000) May 1 300,000 * 1/12 * 1.4 * 2 = 70,000</p><p>Issued 40% Stock Dividend 120,000 June 1 420,000 * 3/12 * 2 = 210,000</p><p>Issued 100,000 September 1 520,000 * 1/12 * 2 = 86,667</p><p>Issued 2 for 1 Stock Split 520,000 October 1 1,040,000 * 3/12 = 260,000 Weighted Average Number of Shares Outstanding for Year 897,334 b. Earnings Per Share (with Non-Cumulative Preferred Stock)</p><p>(1,,410,000 – 0)/897,334 shares = 1.57 EPS</p><p> c. Earnings Per Share (with Cumulative Preferred Stock)</p><p>(1,410,000 – 350,000)/897,334 shares = 1.18 EPS</p><p>7. a. Basic Earnings Per Share</p><p>$576,000/210,000 = 2.74 Basic EPS</p><p> b. Diluted Earnings Per Share – with Convertible Bonds</p><p>Weighted Average Shares Outstanding 210,000 6% Bond Converted to CS Shares 10,000 8% Bond Converted to CS Shares 1,500* Total Weighted Average Shares if Converted 221,500</p><p>*6,000 * 3/12 = 1,500</p><p>Net Income 576,000 Interest Expense Avoided if Converted – 6% Bond 21,000* Interest Expense Avoided if Converted – 8% Bond 4,200** Net Income if Converted 601,200</p><p>*$500,000 * .06 * (1-.30) = $21,000 **$300,000 * .08 * (1-.30) * 3/12 = 4,200</p><p>$601,200/221,500 = 2.71 Diluted Earnings Per Share 8. Diluted Earnings Per Share – with Stock Options</p><p>If Exercised 50,000 * $30 per share = $1,500,000 Proceeds Potential Buy Back $1,500,000/$40 per share = 37,500 Shares we are able to Buy Back for Treasury</p><p>Weighted Average Shares Outstanding 112,500 Shares Issued if Options Exercised 50,000 Shares We Buy Back with Proceeds (37,500) Adjusted Weighted Average Shares Outstanding 125,000</p><p>$360,000/125,000 = 2.88 Diluted Earnings Per Share</p>