Questions -
Q1. Required: Prepare the journal entry needed to record either of the unrelated bond transactions described below.
(Note: the journal entry for only one of the two scenarios needs to be correct to earn the extra credit point. To increase your chances of success, you may submit an answer for both scenarios, but that is not required.)
a. On January 1, 2013, Bowling Corp. issued $6,000,000 3 year 9% convertible bonds for $6,157,264, resulting in a yield of 8%. The bonds call for semi-annual interest payments on June 30th and December 31st, and each bond is convertible into 4 shares of Bowling's $20 par common stock. The effective interest method is used to amortize any bond discount or premium. On July 1, 2014, immediately after the June 30th interest payment date, all of the bonds were converted when the stock was selling at $53 per share.
b. On April 1, 2014, Golf Corp issues $10,000,000 of 8% bonds at 99.5. To help with the sale, ten detachable stock warrants are issued with each $1,000 bond sold. Separately, the bonds are selling at 98 and each warrant is selling at $62.
Q2. Tennis Corp. had $600,000 net income in 2014. On January 1, 2014 there were 200,000 shares of common stock outstanding. On April 1, 20,000 shares were issued and on September 1, Tennis bought 30,000 shares of treasury stock.
Tennis had the following additional securities outstanding during 2014:
- 30,000 options to buy common stock at $40 a share
- 40,000 shares of $100 par 3.5% preferred stock convertible into three shares of common stock.
- $2,000,000 8% convertible bonds which were originally sold at face value; each bond is convertible into 30 shares of common stock
The market price of the common stock averaged $50 during 2014. The tax rate is 40%.
Required:
Calculate basic earnings per share.
Calculate fully diluted earnings per share.