Questions -
Question 1 - Basic and diluted EPS.
Assume that the following data relative to Kane Company for 2018 is available:
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Net Income
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$2,100,000
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|
Transactions in Common Shares
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Change
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Cumulative
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|
Jan. 1, 2018, Beginning number
|
|
700,000
|
|
Mar. 1, 2018, Purchase of treasury shares
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(60,000)
|
640,000
|
|
June 1, 2018, Stock split 2-1
|
640,000
|
1,280,000
|
|
Nov. 1, 2018, Issuance of shares
|
240,000
|
1,520,000
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6% Cumulative Convertible Preferred Stock Sold at par, convertible into 200,000 shares of common (adjusted for split).
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|
$1,000,000
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Stock Options
Exercisable at the option price of $25 per share. Average market price in 2018, $30 (market price and option price adjusted for split).
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90,000 shares
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Instructions
(a) Compute the basic earnings per share for 2018. (Round to the nearest penny.)
(b) Compute the diluted earnings per share for 2018. (Round to the nearest penny.)
Question 2 - Basic and diluted EPS.
The following information was taken from the books and records of Ludwick, Inc.:
1. Net income - $ 480,000
2. Capital structure:
a. Convertible 6% bonds. Each of the 300, $1,000 bonds is convertible into 50 shares of common stock at the present date and for the next 10 years. - 300,000
b. $10 par common stock, 200,000 shares issued and outstanding during the entire year. - 2,000,000
c. Stock warrants outstanding to buy 16,000 shares of common stock at $20 per share. -
3. Other information:
a. Bonds converted during the year - None
b. Income tax rate - 30%
c. Convertible debt was outstanding the entire year
d. Average market price per share of common stock during the year - $32
e. Warrants were outstanding the entire year
f. Warrants exercised during the year - None
Instructions - Compute basic and diluted earnings per share.
Question 3 - Fair value and equity methods.
Fill in the dollar changes caused in the Investment account and Dividend Revenue or Investment Revenue account by each of the following transactions, assuming Crane Company uses (a) the fair value method and (b) the equity method for accounting for its investments in Hudson Company.
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(a) Fair Value Method
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(b) Equity Method
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Transactions
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Investment
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Dividend
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Investment
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Investment
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Account
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Revenue
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Account
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Revenue
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1. At the beginning of Year 1, Crane bought 30% of Hudson's common stock at its book value. Total book value of all Hudson's common stock was $800,000 on this date.
2. During Year 1, Hudson reported $60,000 of net income and paid $30,000 of dividends.
3. During Year 2, Hudson reported $30,000 of net income and paid $20,000 of dividends.
4. During Year 3, Hudson reported a net loss of $10,000 and paid $4,000 of dividends.
5. Indicate the Year 3 ending balance in the Investment account, and cumulative totals for Years 1, 2, and 3 for dividend revenue and investment revenue.
Question 4 - Trading equity securities.
Korman Company has the following securities in its portfolio of equity securities on December 31, 2018:
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Cost
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Fair Value
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5,000 shares of Thomas Corp., Common
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$151,000
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$139,000
|
|
10,000 shares of Gant, Common
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184,000
|
190,000
|
|
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$335,000
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$329,000
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All of the securities had been purchased in 2018. In 2019, Korman completed the following securities transactions:
March 1 - Sold 5,000 shares of Thomas Corp., Common @ $32 less fees of $1,500.
April 1 - Bought 600 shares of Werth Stores, Common @ $45 plus fees of $550.
The Korman Company portfolio of equity securities appeared as follows on December 31, 2019:
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Cost
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Fair Value
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|
10,000 shares of Gant, Common
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$184,000
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$195,500
|
|
600 shares of Werth Stores, Common
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27,550
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25,500
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|
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$211,550
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$221,000
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Instructions - Prepare the general journal entries for Korman Company for:
(a) the 2018 adjusting entry.
(b) the sale of the Thomas Corp. stock.
(c) the purchase of the Werth Stores' stock.
(d) the 2019 adjusting entry.
Question 5 - Equity investments.
Perez Company began operations in 2017. Since then, it has reported the following gains and losses for its equity investments in on the income statement:
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2017
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2018
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2019
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Gains (losses) from sale of securities
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$15,000
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$(20,000)
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$14,000
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Unrealized holding losses on valuation of securities
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(30,000)
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-
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(15,000)
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Unrealized holding gain on valuation of securities
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-
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10,000
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-
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At January 1, 2020, Perez owned the following securities:
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Cost
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BKD Common (15,000 shares @ $30)
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$450,000
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LRF Preferred (2,000 shares @ $105)
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210,000
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During 2020, the following events occurred:
1. Sold 5,000 shares of BKD for $170,000.
2. Acquired 1,000 shares of Horton Common for $40 per share. Brokerage commissions totaled $1,000.
At 12/31/20, the fair values for Perez's investments were:
BKD Common, $28 per share
LRF Preferred, $110 per share
Horton Common, $45 per share
Instructions -
(a) Prepare a schedule which shows the balance in the Fair Value Adjustment account at December 31, 2019 (after the adjusting entry for 2019 is made).
(b) Prepare a schedule which shows the aggregate cost and fair values for Perez's securities portfolio at 12/31/20.
(c) Prepare the necessary adjusting entry based upon your analysis in (b) above.