Assignment

Part 1

Pandora Corporation's stockholders' equity consists of 20,000 shares of $10 par value, 7% preferred and 30,000 shares of $100 par value common and retained earnings $630,000.

Required:

Assuming that the company has net income of $366,000, all of which is to be paid out in dividends, and that preferred dividends were not paid during the current year or the past year, state how much each class of stock should receive under each of the following conditions.

1. The preferred stock is cumulative and fully participating.
2. The preferred stock is noncumulative and nonparticipating.
3. The preferred stock is noncumulative and partially participating up to 4%.

Part 2

The Coburn Corporation issued 10-year, $5,000,000 par, 7% callable convertible subordinated debentures on January 2, 20X7. The bonds have a par value of $1,000, with interest payable annually, The current conversion ratio is 14:1 (14 shares of common for each $1,000 face value bond)`, and in 2 years it will increase to 18:1. At the date of issue, the bonds were sold at face value. Coburn's effective tax was 35%. Net income in 20X7 was $9,500,000, and the company had 2,000,000 shares outstanding during the entire year.

Required:

1. Compute both basic and diluted earnings per share for 20X7.

2. Discuss how the schedule would differ if the security was convertible cumulative 7% preferred stock $1,000 par $5,000,000 with 14:1 conversion ratio. Assume no dividends were declared during the year.