ACCT 302, FALL 1998
The following slides cover the tentatively planned Exam 2 Exercises and
Problems Ch.15, Ch.16, & partial Ch.17
Chapter 15
Chapter 16
Chapter 17 (partial)
Ex 15-2
E16-1
Ex 17-1
Ex 15-3
E16-5
Ex 17-2
Ex 15-4
E16-6
Ex 17-8
Ex 15-5
E16-17
Ex 17-18
Ex 15-6
P15-2
P15-3
P15-6
Ex 17-21
Splitting Lump Sums received for Bonds + Stock:
1. Incremental Method: If total received and value of one is known…
(See Ill 15-3, p. 768)
2. Proportional Method: If market value of both are known then split
cash received based on relative % of total value received.
(See Ill. 15-2, p. 767)
Ex 15-6: Bonds
$5,000,000
5/9
Stock 10,000 x 10 x $40 =
$4,000,000
4/9
Total
$9,000,000
Part 1a asks for the Incremental Method. The Incremental method is
demonstrated next, followed by a discussion of individual Calculations
in the JE
Ex. 15-6 Where did the $200,000 bond issue costs come from???
Value of Units Sold:
%
Bonds
5,000,000
(5/8.8)
Stock 9,600 units x 10 shares x $40 =
3,840,000
(3.8/8.8)
Total
8,840,000
Total UnderWriting fee 400 units x $880 =
$352,000
Amount Allocated to Bonds vs. Stock:
Bonds:
(5/8.8) x $352,000 = $200,000 rounded
(Shown as Bond Issue Cost)
Stock:
(3.8/8.8) x $352,000 = $152,000
(Reflected as a decrease to PIC Excess, See p. 769)
Where did PIC EXCESS
$3,148,000 come from??? PLUG!!!
Bond Issue Cost + Cash 200,000 + 8,448,000 =
$8,648,000
- Bonds Payable
(5,000,000)
- Par of Stock Issued
( 500,000)
Net Credit to PIC Excess
$3,148,000
=========
Part a2. asks for the Proportional Method. The proportional method is
demonstrated next, followed by a discussion of individual Calculations
in the JE
P15-2 REMEMBER:
5/1: (.7 x $120 x 500)/ 3 = $14,000
6/1: 14,000 - ((.7 x $120 x 100sh)/3)) = $11,200
6/5:
1. Remove CS Subscribed associated with her
2. Remove remaining Subscription Rec Associated with her
(100 x $120) x 70% x (2/3) … she made 1 pymt!
3. Balance is due to her 10,000 - 5,600 = 4,400
6/17: Sold for 105 vs 100 orig subscript… She will get Net Excess
10,500 - 10,000 = 500 BUT THIS GETS REDUCED BY $125
End Of Ch 15 Ex & Probs
Chapter 16 Stockholder’s Equity: Retained Earnings
Dividends:
Can They be Paid
Legal Issues
vs.
Can We Pay Them?
Working Capital Issue
The trend???
What is a Dividend Yield?
Div / Stk Price
Stock Dividends: Permanent transfer from RE to PIC
Small (<20 -25%)
base transfer on Market Price
Large (>25%)
base transfer on Par Value
Own more shares… each worth proportionately less
Not a thing of value?
Stock Split: No JE, Just an adjustment of Par
Ex. 16-5
a) Cumulative Preferred, fully participating:
Preferred Common Total
Remaining
366,000
1 Yr Arrears
14,000
14,000
352,000
Current
14,000
210,000
224,000 128,000
Split Remaining
8,000
120,000
128,000
(Based on % of Total Par Value)
.2/3.2 x 128,000 = 8,000
3/3.2 x 128,000 = 120,000
0
Ex. 16-5
b) Noncumulative, non-participating Split $366,000
Preferred
Common
Total
14,000
352,000
366,000
c) Noncumulative, participating in excess of 10%
Preferred
Common
Total
Remaining
366,000
Current
14,000
Last 3%
Split 52,000
3,250
.2/3.2 x 52,000 = 3,250
210,000
224,000
142,000
90,000
90,000
52,000
52,000
0
48,750
3/3.2 x 52,000 = 48,750
Chapter 17 Topics for Exam 2:
Convertible Bonds
Bonds & Detachable Warrants
Simple EPS