On June 1, 2012, Andre Company and Agassi Company merged to form Lancaster Inc. A total of 907,000 shares were issued to complete the merger. The new corporation reports on a calendar-year basis.
On April 1, 2014, the company issued an additional 657,000 shares of stock for cash. All 1,564,000 shares were outstanding on December 31, 2014.
Lancaster Inc. also issued $857,000 of 20-year, 9% convertible bonds at par on July 1, 2014. Each $1,000 bond converts to 42 shares of common at any interest date. None of the bonds have been converted to date.
Lancaster Inc. is preparing its annual report for the fiscal year ending December 31, 2014. The annual report will show earnings per share figures based upon a reported after-tax net income of $1,545,000. (The tax rate is 40%.)
Determine the following for 2014.
(a) The number of shares to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)
1. Basic earnings per share
2. Diluted earnings per share
(b) The earnings figures to be used for calculating: (Round answers to 0 decimal places, e.g. $2,500.)
1. Basic earnings per share
2. Diluted earnings per share
Question 2: 10 points
On November 24, 2014, 26 passengers on Windsor Airlines Flight No. 901 were injured upon landing when the plane skidded off the runway. Personal injury suits for damages totaling $9,374,000 were filed on January 11, 2015, against the airline by 18 injured passengers. The airline carries no insurance. Legal counsel has studied each suit and advised Windsor that it can reasonably expect to pay 50% of the damages claimed. The financial statements for the year ended December 31, 2014, were issued February 27, 2015.
Prepare the journal entry required by the airline in preparation of the December 31, 2014, financial statements. (If no entry is required, respond with "no entry needed"
Question 3: 25 points
On April 1, 2014, Seminole Company sold 15,300 of its 11%, 14-year, $1,000 face value bonds at 97. Interest payment dates are April 1 and October 1, and the company uses the straight-line method of bond discount amortization. On March 1, 2015, Seminole took advantage of favorable prices of its stock to extinguish 6,100 of the bonds by issuing 201,300 shares of its $10 par value common stock. At this time, the accrued interest was paid in cash. The company's stock was selling for $32 per share on March 1, 2015.
Prepare the journal entries needed on the books of Seminole Company to record the following. (Round answers to 0 decimal places, e.g. 38,548)
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(a)
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April 1, 2014: issuance of the bonds.
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(b)
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October 1, 2014: payment of semiannual interest.
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(c)
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December 31, 2014: accrual of interest expense.
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(d)
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March 1, 2015: extinguishment of 6,100 bonds. (No reversing entries made.)
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