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D-I
D-II
D-III
D-IV
D-V
D-VI
D-VII
D-VIII
COMPREHENSIVE EXAMINATION D
PART 4
(Chapters 15-17)
Approximate
Topic
Time
Treasury Stock.
20 min.
*Cash Dividends.
10 min.
Stock Dividends and Stock Splits.
10 min.
Earnings Per Share Concepts.
10 min.
Earnings Per Share Computations.
10 min.
Basic and Diluted Earnings Per Share.
20 min.
Available-for-Sale Equity Securities.
15 min.
Trading Securities.
30 min.
125 min.
D-2
2. On March 4, Carey sold 5,000 of these reacquired shares at $28 per share.
3. Show the proper disclosures in the stockholders' equity section of the balance
sheet issued at the end of the first quarter, March 31, 2013. Assume net
income of $100,000 during the first quarter.
4. On June 30, 2013 the firm sold 10,000 of the reacquired shares for $21 per
share.
*Problem D-II Cash Dividends
Bell Company has stock outstanding as follows: Common, $10 par value per
share, 140,000 shares; Preferred, 5%; $100 par value per share, 8,000 shares.
The Preferred is cumulative and participating up to an additional 4% of par;
two years are in arrears (not including the current year); and the total amount of
cash dividends declared for both classes of stock is $230,000.
Instructions
Prepare the entry for the dividend declaration, separating the dividend into the
common and preferred portions.
Problem D-III Stock Dividends and Stock Splits
Stock dividends and stock splits are common forms of corporate stock
distribution to stockholders.
Consider each of the numbered statements. You are to decide whether it:
A. Applies to both stock dividends and stock splits.
B. Applies to neither.
C. Applies to stock splits only.
D.Applies to stock dividends only.
E. Applies to stock splits effected in the form of a dividend only.
F. Applies to both stock splits effected in the form of a dividend and a stock
dividend.
D - 3D
Comprehensive Examination
(In each instance, the issuing company has only one class of stock.)
Instructions
Print next to the number of each statement below, the single capital letter of the
description which applies to the statement.
Statements
___ 1. The distribution is a multiple as contrasted to a fraction of the number
of shares previously outstanding.
___ 2. The total number of shares outstanding is increased.
___ 3. The individual stockholder's share of net assets is increased.
___ 4. There is no transfer between retained earnings and capital stock
accounts, other than to the extent occasioned by legal requirements.
___ 5. There is no change in the total stockholders' equity of the issuing
corporation.
___ 6. The retained earnings available for dividends are increased.
___ 7. Retained earnings in the amount of the distribution are transferred to
capital stock, in some instances in an amount in excess of that required
by the laws of the state of incorporation.
___ 8. Subsequent per-share earnings, if any, are decreased.
___ 9. The par (or stated value) of the stock is unchanged.
D-4
D - 5D
Comprehensive Examination
Instructions
Compute the earnings per share data, excluding any notes if required.
Problem D-VI Basic and Diluted Earnings Per Share
Assume that the following data relate to Rosen, Inc. for the year 2013:
Net income (30% tax rate)
$3,000,000
Average common shares outstanding 20131,000,000 shares
10% cumulative convertible preferred stock:
Convertible into 80,000 shares of common$1,600,000
8% convertible bonds; convertible into 75,000
shares of common
$2,500,000
Stock options:
Exercisable at the option price of $25 per share;
average market price in 2013, $30
84,000 shares
Instructions
Compute (a) basic earnings per share, and (b) diluted earnings per share.
Problem D-VII Available-for-Sale Equity Investments
On January 2, 2012, Norwin Company purchased 1,000 shares of Oslo
Company common stock for $30,000. The stock has a par value of $10 and is
part of the total stock outstanding of 20,000 shares of Oslo Company. Norwin
Company intends the stock to be available for sale. Total stockholders' equity
of Oslo Company on January 2, 2012 was $600,000.
Instructions
Prepare necessary journal entries on the books of Norwin Company for the
following transactions. If no entry is required, write "none" in the space
provided. (Round all calculations to the nearest cent.)
(a) January 2, 2012: Norwin purchases the shares described above.
D-6
(b) December 31, 2012: Norwin receives a $.75 per share dividend from Oslo,
and Oslo announces a net income for 2012 of $250,000.
(c) December 31, 2012: According to The Wall Street Journal, Oslo common is
selling for $27 per share. Norwin's management views this decline as being
only temporary in nature. Oslo's common is Norwin's only available-forsale security.
(d) February 15, 2013: Norwin sells 500 of the shares purchased on January 2,
2012 at $32 per share.
Problem D-VIII Trading Securities
The information below relates to Milton Company's trading securities in 2012
and 2013.
(a) Prepare the journal entries for the following transactions.
January 1, 2012
Purchased $300,000 par value of GLF Company bonds at
97 plus accrued interest. The bonds pay interest annually at 9%
each December 31. Broker's commission was $3,000.
September 1, 2012 Sold $150,000 par value of GLF Company bonds at 94 plus
accrued interest. Broker's commission, taxes, and fees were
$1,500.
September 5, 2012 Purchased 5,000 shares of Hayes, Inc. common stock for
$30 per share. The broker's commission on the purchase
amounted to $2,000.
December 31, 2012 Make the appropriate entry for the GLF Company bonds.
D - 7D
Comprehensive Examination
December 31, 2012 The market prices of the trading securities at December 31
were: Hayes, Inc. common stock, $31 per share; and GLF
Company bonds, 99. Make the appropriate entry.
July 1, 2013
Milton sold 1/2 of the Hayes, Inc. common stock at $32 per
share. Broker's commissions, taxes, and fees were $1,000.
D-8
D - 9D
Comprehensive Examination
Preferred Common
Total
Arrears$800,000 5% 2 $80,000
$ 80,000
Preference$800,000 5% 40,000
40,000
Common$1,400,000 5%
$ 70,000 70,000
Participating 2%*
16,000 24,000 40,000
$136,000
$ 94,000$230,000
* [($230,000 $190,000) ($600,000 + $1,400,000)]
Problem D-III Solution.
1. C
4. E
7. F
2. A
5. A
8. A
3. B
6. B
9. F
Problem D-IV Solution.
1. D
5. BD
2. BD
6. D
3. N
7. D
4. D
8. N
Problem D-V Solution.
Basic earnings per share
($1,200,000 500,000 shares)
Diluted earnings per share
$1,200,000 + .7($180,000 + $18,000)
500,000 + 70,000
Problem D-VI Solution.
$3,300,000 $160,000
$2.40
$2.35
Shares
Earnings
Start
1,500,000 $3,140,000
Convertible preferred80,000 160,000
Convertible bonds 75,000
140,000*
Options
14,000**
0
1,669,000 $3,440,000
*($2,500,000 .08) (1 .30)
**[($30 $25) $30] 84,000
$3,440,000 1,669,000 = $2.06 DEPS
750
750
No entry to accrue investee profits because fair value, not equity, method is
being used.
(c) Unrealized Holding Gain or LossEquity 3,000
Fair Value Adjustment (Available-for-Sale)
(d) Cash (500 $32) ....................................... 16,000
Gain on Sale of Securities ..................
1000
Equity Investments (500 $30)..........
15,000
3,000
D - 11D
Comprehensive Examination
14,200
2012
2013
$303,500
$345,200
Income Statement
Other revenue and gains:
Interest Revenue
$13,500
$13,500
Unrealized holding gain on trading securities4,500 14,200
Gain on sale of securities
3,000
Other expenses and losses:
Loss on sale of securities
7,500