CHAPTER 16
SOLUTIONS TO B EXERCISES
E16-1B (15–20 minutes)
1.
2.
Cash ($50,000,000 X 1.02) .............................
Bonds Payable ........................................
Premium on Bonds Payable ..................
51,000,000
Unamortized Bond Issue Costs ...................
Cash ........................................................
750,000
Cash ...............................................................
Bonds Payable ........................................
Premium on Bonds Payable ..................
Paid-in Capital—Stock Warrants ...........
35,350,000
Value of bonds
plus warrants
($35,000,000 X 1.01)
Value of warrants
(35,000 X $6.50)
Value of bonds
3.
50,000,000
1,000,000
750,000
35,000,000
122,500
227,500
$35,350,000
227,500
$35,122,500
Debt Conversion Expense ............................
Bonds Payable ..............................................
Premium on Bonds Payable .........................
Common Stock .......................................
Paid-in Capital in Excess of Par ............
Cash ........................................................
355,000
60,000,000
155,000
600,000
59,555,000*
355,000
*[($60,000,000 + $155,000) – $600,000]
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
16-1
E16-2B (15–20 minutes)
(a) Interest Payable ($900,000 X 4/6) ..........................
Interest Expense ($900,000 X 2/6) + $1,890 .............
Discount on Bonds Payable ...........................
Cash ($15,000,000 X 12% ÷ 2) .........................
600,000
301,890
1,890
900,000
Calculations:
Par value
Issuance price
Total discount
$15,000,000
14,550,000
$ 450,000
Months remaining
Discount per month
($450,000 ÷ 476)
Discount amortized
(2 X $945)
476
$ 945
$1,890
(b) Bonds Payable .......................................................
Discount on Bonds Payable............................
Common Stock (60,000 X $1) ..........................
Paid-in Capital in Excess of Par .....................
7,500,000
221,218
60,000
7,218,782*
*($7,500,000 – $221,220) – $60,000
Calculations:
Discount related to 1/2 of
the bonds ($450,000 X 1/2)
Less: Discount amortized
[($225,000 ÷ 476) X 8]
Unamortized bond discount
$225,000
3,782
$221,218
E16-3B (10–20 minutes)
Conversion recorded at book value of the bonds:
Bonds Payable ...............................................................
Premium on Bonds Payable .........................................
Common Stock (5,600 X 10 X $1) ..........................
Paid-in Capital in Excess of Par
(Common Stock) ................................................
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5,600,000
150,000
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
56,000
5,694,000
(For Instructor Use Only)
E16-4B (15–20 minutes)
(a) Cash .................................................................
Bonds Payable .........................................
Premium on Bonds Payable ...................
26,500,000
(b) Bonds Payable ................................................
Premium on Bonds Payable
(Schedule 1) .................................................
Common Stock, $0.50 par
(Schedule 2) .........................................
Paid-in Capital in Excess of Par .............
10,000,000
25,000,000
1,500,000
510,000
100,000
10,410,000
Schedule 1
Computation of Unamortized Premium on Bonds Converted
Premium on bonds payable on July 1, 2013 ...............
$1,500,000
Amortization for 2013 ($1,500,000 ÷ 10 X 6/12) ........... $ 75,000
Amortization for 2014 ($1,500,000 ÷ 10) ......................
150,000
225,000
Premium on bonds payable on January 1, 2015.........
1,275,000
Bonds converted (10/25) ..............................................
40%
Unamortized premium on bonds converted ...............
$ 510,000
Schedule 2
Computation of Common Stock Resulting from Conversion
Number of shares convertible on January 1, 2013: Number of bonds
($25,000,000 ÷ $1,000)....................................................
25,000
Number of shares for each bond ..............................
X 10
250,000
Stock split on January 1, 2014 ......................................
X
2
Number of shares convertible after the stock split .....
500,000
% of bonds converted ...................................................
X 40%
Number of shares issued ..............................................
200,000
Par value/per share ........................................................
$0.50
Total par value ...............................................................
$100,000
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
16-3
E16-5B (10–20 minutes)
Interest Expense ............................................................
Discount on Bonds Payable
[$110,050 ÷ 162 = $679; $679 X 5] .....................
Cash (12% X $2,500,000 X 1/2) ..............................
153,395
Bonds Payable ...............................................................
Loss on Retirement of Debt ..........................................
Discount on Bonds Payable ($110,050 – $3,395) ......
Cash ........................................................................
Common Stock (1,250 X 15 X $10) ........................
Paid-in Capital in Excess of Par............................
2,500,000
53,327**
3,395
150,000
106,655
1,250,000
187,500
1,009,172*
*[$1,250,000 – ($106,655 X 1/2)] – $187,500
**[$1,250,000 – ($106,655 X 1/2)] – $1,250,000
E16-6B (25–35 minutes)
(a)
(b)
December 31, 2013
Bond Interest Expense ............................................
Premium on Bonds Payable
($100,000 X 1/15 X 6/12) ......................................
Cash ($1,000,000 X 12% X 6/12).......................
January 1, 2014
Bonds Payable .........................................................
Premium on Bonds Payable ....................................
Common Stock (400 X 4 X $5) .........................
Paid-in Capital in Excess of Par ......................
Total premium
($1,000,000 X .10)
Premium amortized
($100,000 X 2/15)
Balance
Bonds converted
($400,000 ÷ $1,000,000)
Related premium
($86,667 X 40%)
16-4 Copyright © 2014 John Wiley & Sons, Inc.
56,667
3,333
60,000
400,000
34,667
8,000
426,667
$100,000
13,333
$ 86,667
40%
34,667
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
E16-6B (Continued)
(c)
May 31, 2014
Bond Interest Expense ............................................
Premium on Bonds Payable ....................................
Bond Interest Payable
($400,000 X 12% X 5/12)................................
Bonds Payable .........................................................
Premium on Bonds Payable ....................................
Common Stock (400 X 4 X $5) .........................
Paid-in Capital in Excess of Par ......................
18,889
1,111
20,000
400,000
33,556
8,000
425,556
Premium as of January 1, 2014,
for $400,000 of bonds
$34,667
$34,667 ÷ 13 years remaining
X 5/12
(1,111)
Premium as of May 31, 2014,
for $400,000 of bonds
$33,556
(d)
June 30, 2014
Bond Interest Expense ............................................
Premium on Bonds Payable ....................................
Bond Interest Payable ..............................................
Cash...................................................................
11,333
667**
20,000
32,000*
***Total to be paid: ($200,000 X 12% ÷ 2) + $20,000 = $32,000
***Original premium
2012 amortization
2013 amortization
Jan. 1, 2014 write-off
May 31, 2014 amortization
Mar. 31, 2014 write-off
Premium to be amortized:
$17,332/13 X 6/12
Copyright © 2014 John Wiley & Sons, Inc.
$100,000
(6,667)
(6,667)
(34,667)
(1,111)
(33,556)
$ 17,332
667
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
16-5
E16-7B (10–15 minutes)
(a) Basic formulas:
Value of bonds without warrants
X Issue price = Value assigned to bonds
Value of bonds without warrants
+ Value of warrants
Value of warrants
X Issue price = Value assigned to warrants
Value of bonds without warrants
+ Value of warrants
$775,000
$775,000 + $75,000
X $825,000 = $752,206
Value assigned to bonds
$75,000
$775,000 + $75,000
X $825,000 = $72,794
Value assigned to warrants
Cash ..........................................................................
Discount on Bonds Payable ....................................
($850,000 – $752,206) .......................................
Bonds Payable .................................................
Paid-in Capital—Stock Warrants .....................
825,000
97,794
850,000
72,794
(b) When the warrants are nondetachable, separate recognition is not given to
the warrants. The accounting treatment parallels that given convertible
debt because the debt and equity element cannot be separated.
The entry if warrants were nondetachable is:
Cash ..........................................................................
Discount on Bonds Payable ....................................
Bonds Payable .................................................
16-6 Copyright © 2014 John Wiley & Sons, Inc.
825,000
25,000
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
850,000
(For Instructor Use Only)
E16-8B (10–15 minutes)
Cash ...........................................................................
Unamortized Bond Issue Costs ...............................
Bonds Payable (10,000 X $1,000) .....................
Premium on Bonds Payable—Schedule 1 .......
Paid-in Capital—Stock Warrants—
Schedule 1 .....................................................
10,135,000
65,000
10,000,000
125,000
75,000
Schedule 1
Premium on Bonds Payable and Value of Stock Warrants
Sales price (10,000 X $1,020) ....................................................
$10,200,000
Face value of bonds ..................................................................
10,000,000
200,000
Deduct value assigned to stock warrants
(10,000 X 3 = 30,000; 30,000 X $2.50) ......................................
75,000
Premium on bonds payable ......................................................
$ 125,000
E16-9B (10–15 minutes)
(a) Cash ($1,000,000 X 1.05) ...................................
Bonds Payable .............................................
Premium on Bonds Payable
(0.02 X $1,000,000) .....................................
Paid-in Capital—Stock Warrants .................
1,050,000
1,000,000
20,000
30,000*
*$1,050,000 – ($1,000,000 X 1.02)
(b) Market value of bonds without warrants
($1,000,000 X .1.02)...........................................................
Market value of warrants (1,000 X $8) ...............................
Total market value ..............................................................
$1,020,000 X $1,050,000 = $1,041,828
$1,028,000
$8,000
X $1,050,000 = $8,172
$1,028,000
Copyright © 2014 John Wiley & Sons, Inc.
$1,020,000
8,000
$1,028,000
Value assigned to bonds
Value assigned to warrants
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
16-7
E16-9B (Continued)
Cash ..................................................................
Bonds Payable .............................................
Premium on Bonds Payable ........................
Paid-in Capital—Stock Warrants ................
1,050,000
1,000,000
41,828
8,172
E16-10B (15–25 minutes)
7/1/14
1/1/15
12/31/15
12/31/16
12/31/17
2/1/18
No entry on adoption of plan
No entry (total compensation cost is $660,000)
Compensation Expense.............................
220,000
Paid-in Capital—Stock Options.................
220,000
[To record compensation expense
for 2015 (1/3 X $660,000)]
Compensation Expense.............................
220,000
Paid-in Capital—Stock Options.................
220,000
[To record compensation expense
for 2016 (1/3 X $660,000)]
Compensation Expense.............................
220,000
Paid-in Capital—Stock Options.................
220,000
[To record compensation expense
for 2017 (1/3 X $660,000)]
Cash (100,000 X $66) .................................. 6,600,000
Paid-in Capital—Stock Options .................
660,000
Common Stock (100,000 X $1) ..........
100,000
Paid-in Capital in Excess of Par ........
7,160,000
(Note: The market price of the stock has no relevance in the prior entry and the
following one.)
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Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
E16-11B (15–25 minutes)
1/1/14
No entry – total compensation expense is $1,250,000
7/1/14
No entry – compensation total is now only $1,150,000
12/31/14
Compensation Expense.............................
Paid-in Capital—Stock Options
($1,150,000 X 1/2)...........................
575,000
Compensation Expense.............................
Paid-in Capital—Stock Options
($1,150,000 X 1/2)...........................
575,000
Cash (130,000 X $86) ..................................
Paid-in Capital—Stock Options
($1,150,000 X 130,000/230,000) ................
Common Stock ................................
Paid-in Capital in Excess of Par .....
11,180,000
12/31/15
3/31/16
575,000
575,000
650,000
130,000
11,700,000
E16-12B (15–25 minutes)
7/1/13
No entry
12/31/13
Compensation Expense.............................
Paid-in Capital—Stock Options
($350,000 X 1/2 X 1/2) ....................
87,500
Compensation Expense.............................
Paid-in Capital—Stock Options .........
175,000
Compensation Expense.............................
Paid-in Capital—Stock Options .........
87,500
12/31/14
6/30/15
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
87,500
175,000
87,500
(For Instructor Use Only)
16-9
E16-12B (Continued)
7/1/15
Cash (35,000 X $58) .....................................
Paid-in Capital—Stock Options ..................
Common Stock (35,000 X $1) ..............
Paid-in Capital in Excess of Par ..........
2,030,000
245,000*
35,000
2,240,000
*($350,000 X 35,000/50,000)
6/30/17
Paid-in Capital—Stock Options ..................
Paid-in Capital from Expired Stock
Options ($350,000 – $245,000).........
E16-13B (10–15 minutes)
105,000
(a) 1/1/14
Unearned Compensation ..........................
Common Stock (10,000 X $1) ...............
Paid-in Capital Excess of Par ..............
260,000
12/31/15 Compensation Expense ............................
Unearned Compensation
($260,000 ÷ 5).......................................
52,000
(b) 2/22/16
Common Stock ..........................................
Paid-in Capital Excess of Par ...................
Unearned Compensation .....................
Compensation Expense
(2 X $52,000) .......................................
105,000
10,000
250,000
52,000
10,000
250,000
156,000
104,000
E16-14B (10–15 minutes)
(a) 1/1/14
Unearned Compensation ......................
Common Stock ($1 X 50,000) ...........
Paid-in Capital in Excess of Par .......
12/31/15 Compensation Expense
($1,100,000 ÷ 4) ...................................
Unearned Compensation ...................
(b) 8/1/17
Common Stock ......................................
Paid-in Capital in Excess of Par ...........
Compensation Expense ....................
Unearned Compensation ..................
16-10 Copyright © 2014 John Wiley & Sons, Inc.
1,100,000
50,000
1,050,000
275,000
275,000
50,000
1,050,000
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
825,000
275,000
(For Instructor Use Only)
E16-15B (15–25 minutes)
(a) 10,000,000 shares:
2012 weighted-average number of shares
previously computed ..............................................
Retroactive adjustment for stock split ..................................
(b) 11,500,000 shares:
Jan. 1, 2013–Mar. 31, 2013 (5,000,000 X 3/12) ........................
Apr. 1, 2013–Dec. 31, 2013 (6,000,000 X 9/12) .......................
Retroactive adjustment for stock split .......................
(c) 14,950,000 shares:
2013 weighted average number of shares
previously computed ..................................................
Retroactive adjustment for stock dividend ...........................
(d) 15,600,000 shares
Jan. 1, 2014–Jun. 30, 2014 (12,000,000 X 6/12) ......................
Retroactive adjustment for stock dividend ...........................
Jan. 1, 2014–Jun. 30, 2014, as adjusted.................................
Jul. 1, 2014–Dec. 31, 2014 (15,600,000 X 6/12) ......................
5,000,000
X
2
10,000,000
1,250,000
4,500,000
5,750,000
X
2
11,500,000
11,500,000
X
1.30
14,950,000
6,000,000
X
1.30
7,800,000
7,800,000
15,600,000
E16-16B (10–15 minutes)
(a)
Event
Beginning balance
Issued shares
Reacquired shares
Stock dividend
Reissued shares
Stock split
Dates
Outstanding
Shares
Outstanding
Jan. 1–Mar. 1
Mar. 1–Apr. 1
Apr. 1–Jul. 1
Jul. 1–Sep. 1
Sep. 1–Oct. 1
Oct. 1–Dec. 31
2,650,000
2,900,000
2,700,000
3,240,000
3,480,000
6,960,000
Restatement
1.2 X 2.0
1.2 X 2.0
1.2 X 2.0
2.0
2.0
Fraction
of Year
2/12
1/12
3/12
2/12
1/12
3/12
Weighted-average number of shares outstanding
(b)
Earnings per share =
$8,352,000 – $1,800,000
= $0.98
6,660,000 (weighted-average shares)
(c)
Earnings per share =
$8,352,000
= $1.25
6,660,000
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
Weighted
Shares
1,060,000
580,000
1,620,000
1,080,000
580,000
1,740,000
6,660,000
(For Instructor Use Only)
16-11
E16-16B (Continued)
(d) Income from continuing operationsa
Loss from discontinued operationsb
Net income
a
Net income available for common
Add: Loss from discontinued operations
Income from continuing operations
$1.06
(0.08)
$0.98
$6,552,000
500,000
$7,052,000
$7,052,000 = $1.06
6,660,000
b
$(500,000) = $(0.08)
6,660,000
E16-17B (12–15 minutes)
Dates
Shares
Event
Outstanding Outstanding
Beginning balance
Jan. 1–Apr. 1
600,000
Reacquired shares
Apr. 1–Jul. 31
585,000
Issued shares
Jul. 31–Dec. 31
635,000
Weighted-average number of shares outstanding
Fraction
of Year
3/12
4/12
5/12
Earnings per share ($982,500/609,583)...........................................
Income per share before extraordinary item
($982,500 – $300,000 = $682,500;
$682,500 ÷ 609,583 shares)...........................................................
Extraordinary gain per share, net of tax
($300,000 ÷ 609,583) ......................................................................
Net income per share ($982,500 ÷ 609,583) ....................................
16-12 Copyright © 2014 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
Weighted
Shares
150,000
195,000
264,583
609,583
$1.61
$1.12
0.49
$1.61
(For Instructor Use Only)
E16-18B (10–15 minutes)
Event
Dates
Outstanding
Shares
Outstanding
Beginning balance
Jan. 1–Apr 1
500,000
Issued shares
Apr 1–Oct. 1
1,300,000
Stock dividend
Oct. 1–Dec. 31
1,820,000
Weighted-average number of shares outstanding
Restatement
Fraction
of Year
Weighted
Shares
3/12
6/12
3/12
175,000
910,000
455,000
1,540,000
1.4
1.4
Net income .................................................................................
Preferred dividend (100,000 X $100 X 8%) ...............................
$5,800,000
(800,000)
$5,000,000
Net income applicable to common stock
$5,000,000
=
Weighted-average number of shares outstanding
1,540,000 = $3.25
E16-19B (20–25 minutes)
Earnings per share of common stock:
Income before extraordinary gain* ....................................
Extraordinary gain, net of tax** ..........................................
Net income***.......................................................................
$2.40
0.29
$2.69
Income data:
Income before extraordinary item ......................................
Deduct 6% dividend on preferred stock ............................
Common stock income before extraordinary item ...........
Add extraordinary gain, net of tax .....................................
Net income available for common stockholders ..............
$53,500,000
2,000,000
51,500,000
6,250,000
$57,750,000
*$51,500,000 ÷ 21,500,000 shares = $2.40 per share
(income before extraordinary gain)
**$6,250,000 ÷ 21,500,000 shares = $0.29 per share
(extraordinary loss net of tax)
***$57,750,000 ÷ 21,500,000 shares = $2.69 per share
(net income)
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
16-13
E16-20B (10–15 minutes)
Income before income tax .......................................................
Income taxes.............................................................................
Net income ................................................................................
$9,862,000
3,944,800
$5,917,200
Per share of common stock:
Net income***
$6.70
Dates
Outstanding
Shares
Outstanding
Fraction
of Year
Weighted
Shares
Jan. 1–Feb. 1
600,000
1/12
Feb. 1–Jun. 1
800,000
4/12
Jun. 1–Nov. 1
880,000
5/12
Nov. 1–Dec 31.
1,200,000
2/12
Weighted-average number of shares outstanding
50,000
266,667
366,666
200,000
883,333
*$5,917,200 ÷ 883,333 shares = $6.70 per share (net income)
E16-21B (10–15 minutes)
Event
Beginning balance
Issued shares
Stock dividend
Issued shares
Dates
Shares
Restate-
Fraction
Weighted
Outstanding
Outstanding
ment
of Year
Shares
Jan. 1–Mar. 1
Mar. 1–Jul. 1
Jul. 1–Oct. 1
Oct. 1–Dec. 31
600,000
1,400,000
1,540,000
1,590,000
1.10
1.10
2/12
4/12
3/12
3/12
110,000
513,333
385,000
397,500
1,405,833
Net income
Preferred dividend (200,000 X $100 X 6%)
$2,689,000
(1,200,000)
$1,489,000
Earnings per share for 2014:
Net income applicable to common stock
= $1,489,000 = $1.06
Weighted average number of common shares outstanding
1,405,833
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Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
E16-22B (20–25 minutes)
(a) Revenues ...........................................................
Expenses
Other than interest.....................................
Bond interest (500 X $1,000 X .06) ............
Income before income taxes ............................
Income taxes (40%) ...................................
Net income .........................................................
$156,500
$104,000
30,000
134,000
22,500
9,000
$ 13,500
Diluted earnings per share:
$13,500 + (1 – .40)($30,000) = $31,500 = $1.05
25,000 + 5,000
30,000
(b) Revenues ..............................................................
Expenses
Other than interest........................................
Bond interest (500 X $1,000 X .06 X 4/12)....
Income before income taxes ...............................
Income taxes (40%) ......................................
Net income ............................................................
$156,500
$104,000
10,000
114,000
42,500
17,000
$ 25,500
Diluted earnings per share:
$25,500 + (1 – .40)($10,000) = $31,500 = $1.18
25,000 + (5,000 X 1/3 yr.)
26,667
(c) Revenues ...............................................................
Expenses
Other than interest.........................................
Bond interest (500 X $1,000 X .06 X 1/2).......
Bond interest (400 X $1,000 X .06 X 1/2).......
Income before income taxes ................................
Income taxes (40%) .......................................
Net income .............................................................
$156,500
$104,000
15,000
12,000
131,000
25,500
10,200
$ 15,300
Diluted earnings per share (see note):
$15,300 + (1 – .40)($27,000)
= $31,500 = $1.05
25,000 + (5,000 X 1/2 yr.) + 500 + (4,000 X 1/2)
30,000
Note: The answer is the same as (a). In both (a) and (c), the bonds are
assumed converted for the entire year.
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
16-15
E16-23B (15–20 minutes)
(a) 1.
Number of shares for basic earnings per share:
Dates
Outstanding
Shares
Outstanding
Fraction
of Year
Jan. 1–Apr. 1
2,500,000
3/12
Apr. 1–Dec. 1
3,000,000
9/12
Weighted-average number of shares outstanding
2.
Weighted
Shares
625,000
2,250,000
2,875,000
Number of shares for diluted earnings per share:
Dates
Outstanding
Shares
Outstanding
Fraction
of Year
Jan. 1–Apr. 1
2,500,000
3/12
Apr. 1–Jul. 1
3,000,000
3/12
Jul. 1–Dec. 31
3,025,000*
6/12
Weighted-average number of shares outstanding
Weighted
Shares
625,000
750,000
1,512,500
2,887,500
*3,000,000 + [($1,000,000 ÷ 1,000) X 25]
(b) 1.
2.
Earnings for basic earnings per share:
After-tax net income ..............................
Earnings for diluted earnings per share:
After-tax net income ..............................
Add back: Interest on convertible
bonds (net of tax):
Interest ($1,000,000 X .06 X 1/2) .....
Less: Income taxes (40%) .............
Total ........................................................
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$13,600,000
$13,600,000
$30,000
12,000
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
18,000
$13,618,000
(For Instructor Use Only)
E16-24B (20–25 minutes)
(a) Net income for year ........................................................
Add: Adjustment for interest (net of tax) .....................
$26,860,000
525,000*
$27,385,000
*Maturity value ................................................................
Stated rate .....................................................................
Cash interest .................................................................
Premium amortization
[(1.00 – 1.05) X $10,000,000 X 1/20] ...........................
Interest expense............................................................
1 – tax rate (40%) ...........................................................
After-tax interest ...........................................................
$10,000,000
X
9%
900,000
X
$
25,000
875,000
.60
525,000
$10,000,000/$1,000 = 10,000 debentures
Increase in diluted earnings per share denominator:
10,000
X
12
120,000
Earnings per share:
Basic EPS
Diluted EPS
$26,860,000 ÷ 12,800,000 = $2.10
$27,385,000 ÷ 12,920,000 = $2.12 anti-dilutive
Because diluted EPS is anti-dilutive, only the $2.10 EPS amount would be
reported.
(b) If the convertible security were preferred stock, basic EPS would be the
same assuming there were no preferred dividends declared or the
preferred was noncumulative. For diluted EPS, the numerator would
be the net income amount, and the denominator would be 12,920,000.
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
16-17
E16-25B (10–15 minutes)
(a) Net income .........................................................................
Add: Interest savings (net of tax)
[$2,000,000 X (1 – .30)] ...................................................
Adjusted net income ..........................................................
$50,000,000 ÷ $1,000 =
$ 8,680,000
1,400,000
$10,080,000
50,000 bonds
X
20
1,000,000 shares
Diluted EPS: $10,080,000 ÷ (2,650,000 + 1,000,000) = $2.76
(b) Shares outstanding .............................................................
Add: Shares assumed to be issued (500,000* X 2) ...........
Shares outstanding adjusted for dilutive securities .........
2,650,000
1,000,000
3,650,000
*$50,000,000 ÷ $100
Diluted EPS: ($8,680,000 – $0) ÷ 3,650,000 = $2.38
Note: Preferred dividends are not deducted since preferred stock was
assumed converted into common stock.
E16-26B (20–25 minutes)
(a)
Shares assumed issued on exercise .......................................
Proceeds (25,000 X $20.50 = $512,500)
Less: Treasury shares purchased ($512,500/$26) .................
Incremental shares ...................................................................
Diluted EPS =
Diluted
25,000
19,711
5,289
$650,000
= $7.12 (rounded)
86,000 + 5,289
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Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
E16-26B (Continued)
(b) Oct. 1, 2014, issue
Shares assumed issued on exercise .......................................
Proceeds (10,000 X $27 = $270,000)
Less: Treasury shares purchased ($270,000/$29.50) ............
Incremental shares....................................................................
Diluted EPS =
Diluted
10,000
9,153
847
X 3/12
212
$650,000
= $7.10 (rounded)
86,000 + 5,289 + 212
E16-27B (10–15 minutes)
(a) Because the earnings level is not being currently attained, contingent
shares are not included in the computation of diluted earnings per share.
(b) The contingent shares would have to be reflected in diluted earnings per
share because the earnings level is currently being attained.
E16-28B (15–20 minutes)
(a) Dilutive
The warrants are dilutive because the option price necessary to acquire one
share of common stock ($30 for two warrants) is less than the average
market price ($32).
Proceeds from assumed exercise:
(50,000 warrants/2 warrants per share X $30 exercise price) .. $750,000
Treasury shares purchasable with proceeds:
($750,000 ÷ $32 average market price)..................................
23,438
Incremental shares issued:
(25,000 shares issued less 23,438 purchased).....................
1,562
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
16-19
E16-28B (Continued)
(b) Basic EPS = $5.10
$2,650,000 ÷ 520,000 shares
(c) Diluted EPS = $5.08
$2,650,000 ÷ (520,000 shares + 1,562 shares)
*E16-29B (15–25 minutes)
(a)
(b)
(c)
Exercis
e
Cumulative
Price
Cumulative
Expense
Current
Market (250,000
Expense
%
Accrued to
Year
Year Price
SARs) Recognizable Accrued
Date
Expense
2013
$51
$50
$ 250,000
25%
$ 62,500 $ 62,500
2014
48
50
–0–
50%
–0–
(62,500)
2015
56
50
1,500,000
75%
1,125,000 1,125,000
2016
54
50
1,000,000
100%
1,000,000 (125,000)
SAR Liability .........................................................
Compensation Expense (SAR) ...................
125,000
SAR Liability .........................................................
Cash .............................................................
1,000,000
125,000
1,000,000
*E16-30B (15–25 minutes)
(a)
Exercise
Cumulative
Price
Cumulative
Expense
Current
Market (50,000
Expense
%
Accrued to
Year
Year Price
SARs) Recognizable Accrued
Date
Expense
2014
$19
$20
$
–0–
33%
$
–0– $
–0–
2015
23
20
150,000
67%
100,000
100,000
2016
25
20
250,000
100%
250,000
150,000
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Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
(For Instructor Use Only)
*E16-30B (Continued)
(b) 2014
2015
2016
(c)
No entry
Compensation Expense (SAR) ..................
SAR Liability .......................................
100,000
Compensation Expense (SAR) ..................
SAR Liability .......................................
150,000
SAR Liability ...............................................
Cash ....................................................
250,000
Copyright © 2014 John Wiley & Sons, Inc.
Kieso, Intermediate Accounting, 15/e, Exercise B Solutions
100,000
150,000
250,000
(For Instructor Use Only)
16-21