1.
The following applies to the ABC Co for 2012:
Transactions in Common Shares
1/1/12, Beginning Outstanding Shares
4/1/12, Stock buyback
6/1/12, Stock Split 2-for-1
10/1/12, Issuance of Additional Shares
Change
Shares
Outstanding
(90,000)
4,910,000
200,000
5,000,000
4,910,000
9,820,000
10,020,000
Outstanding Stock Options (Granted in 2010)
Options for 90,000 shares exercisable at the option price of $35 per share. Average 2012
market price was $50 per share. (Market price and option price already adjusted for stock
split).
Convertible Bonds (Issued December 1, 2012)
$10 million of 3% bonds convertible to shares of common stock. Each $1,000 bond
converts to 80 shares of common.
Net income in 2012 was $2,200,000. ABC’s tax rate is 40%
A) Compute the basic earnings per share for 2012.
B) Compute the diluted earnings per share for 2012.
2.
On September 1, 2012, The XYZ Co. issues $5,000,000 of bonds having a coupon rate of
8%. To help the sale, detachable stock warrants are issued at the rate of five warrants for
each $1,000 bond sold. The fair market value of the warrants is $5 each. The bonds with
the warrants sold at 104 plus accrued interest. Interest is payable on November 1st and
May 1st. (Assume a 360 day year, i.e., 30-day months.)
Prepare the 9/1/12 entry for this transaction.
