Problem 1 - Santana Corporation has 400,000 shares of common stock outstanding throughout 2010. In addition, the corporation has 5,000, 20-year, 7% bonds issued at par in 2008. Each $1,000 bond is convertible into 20 shares of common stock. During the year 2010, the corporation earned $600,000 after deducting all expenses. The tax rate was 30%.
Instructions: Compute earnings per share for 2010.
Problem 2 - On January 1, 2010, Warren Corporation had 1,000,000 shares of common stock outstanding. On March 1, the corporation issued 150,000 new shares to raise additional capital. On July 1, the corporation declared and issued a 2-for-1 stock split. On October 1, the corporation purchased on the market 600,000 of its own outstanding shares and retired them.
Instructions - Compute the weighted average number of shares to be used in computing earnings per share for 2010.
Problem 3 - Gomez Company issues $5,000,000 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 $4,935,000 and the value of the warrants is $315,000. The bonds with the warrants sold at 101.
Instructions - Prepare the journal entry to record the issuance of the bonds and the warrants.