Chapter 16: Q25Q (page 874)
What type of earnings per share presentation is required in a complex capital structure?
An organization with a complex capital structure report both basic EPS and diluted EPS in the financial statements.
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IFRS16-12 Assume the same information in IFRS16-11, except that Angela Corporation converts its convertible bonds on January 1, 2017.
Instructions
(a) Compute the carrying value of the bond payable on January 1, 2017.
(b) Prepare the journal entry to record the conversion on January 1, 2017.
(c) Assume that the bonds were repurchased on January 1, 2017, for \(1,940,000 cash instead of being converted. The net present value of the liability component of the convertible bonds on January 1, 2017, is \)1,900,000. Prepare the journal entry to record the repurchase on January 1, 2017.
How is antidilution determined when multiple securities are involved?
Question: . Mae Jong Corp. issues \(1,000,000 of 10% bonds payable which may be converted into 10,000 shares of \)2 par value ordinary shares. The market rate of interest on similar bonds is 12%. Interest is payable annually on December 31, and the bonds were issued for total proceeds of $1,000,000. In accounting for these bonds, Mae Jong Corp. will:
(a) first assign a value to the equity component, then determine the liability component.
(b) assign no value to the equity component since the conversion privilege is not separable from the bond.
(c) first assign a value to the liability component based on the face amount of the bond.
(d) use the “with-and-without” method to value the compound instrument.
Briefly explain why corporations issue convertible securities.
(EPS: Simple Capital Structure) At January 1, 2017, Langley Company’s outstanding shares included the following.
280,000 shares of \(50 par value, 7% cumulative preferred stock
900,000 shares of \)1 par value common stock
Net income for 2017 was \(2,530,000. No cash dividends were declared or paid during 2017. On February 15, 2018, however, all preferred dividends in arrears were paid, together with a 5% stock dividend on common shares. There were no dividends in arrears prior to 2017.
On April 1, 2017, 450,000 shares of common stock were sold for \)10 per share, and on October 1, 2017, 110,000 shares of common stock were purchased for $20 per share and held as treasury stock.
Instructions
Compute earnings per share for 2017. Assume that financial statements for 2017 were issued in March 2018.
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