Problem 1 - During 2014, P &P made several treasury stock transactions. P&P uses the cost method to account for treasury stock. On February 1, 2014, P&P purchased 1,000 shares of its $10 par value stock in the open market for $15 per share.
Prepare necessary entry (ies) to record the purchase of stock.
Problem 2 - Assume that P&P had net income of $220,000 and had 125,000 weighted shares of common stock outstanding. They also had 5,000 shares of $100 par value, 8%, non-cumulative preferred stock outstanding.
Calculate basic EPS.
Problem 3 - Refer to problem 3. Assume that P&P also had 1,000 convertible bonds outstanding. The bonds pay 2% interest annually and mature in 2020. Assume that each bond is convertible into 100 shares of $10 par value common stock. The current market value of the common stock is $12 per share.
Calculate diluted earnings per share. The marginal tax rate is 30 percent.