Accounting Questions -
Q1. Computation of selected financial ratios.
The following information pertains to Parsons Co.:
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Preferred stock, cumulative:
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Par value per share
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$100
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Dividend rate
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6%
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Shares outstanding
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10,000
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Dividends in arrears
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none
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Common stock:
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Par value per share
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$10
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Shares issued
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120,000
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Dividends paid per share
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$1.80
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Market price per share
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$48.00
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Additional paid-in capital
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$400,000
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Unappropriated retained earnings (after closing)
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$270,000
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Retained earnings appropriated for contingencies
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$300,000
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Common treasury stock:
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Number of shares
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10,000
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Total cost
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$250,000
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Net income
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$500,000
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Instructions - Compute (assume no changes in balances during the past year) Show your work.:
(a) Total amount of stockholders' equity in the balance sheet
(b) Earnings per share of common stock
(c) Book value per share of common stock
(d) Payout ratio of common stock
(e) Return on common stock equity
Q2. Convertible bonds and stock warrants.
For each of the unrelated transactions described below, present the entry(ies) required to record the bond transactions.
1. On August 1, 2018, Lane Corporation called its 10% convertible bonds for conversion. The $8,000,000 par bonds were converted into 320,000 shares of $20 par common stock. On August 1, there was $800,000 of unamortized premium applicable to the bonds. The fair value of the common stock was $20 per share. Ignore all interest payments.
2. Packard, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $4,000,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94.
3. Gomez Company issues $9,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $8,883,000 and the value of the warrants is $567,000. The bonds with the warrants sold at 101.
Q3. Investment in equity securities.
Agee Corporation acquired a 35% interest in Trent Company on January 1, 2018, for $750,000. At that time, Trent had 1,000,000 shares of its $1 par common stock issued and outstanding. During 2018, Trent paid cash dividends of $240,000 and thereafter declared and issued a 5% common stock dividend when the fair value was $2 per share. Trent's net income for 2018 was $540,000. What is the balance in Agee's equity investment account at the end of 2018? Show your work.