3. Cullumber Corp. had $730,000 net income in 2025. On January 1, 2025, there were 200,000 shares of common stock outstanding. On April 1, 23,400 shares were issued and on September 1, Cullumber bought 32,700 shares of treasury stock. There are 28,000 options to buy common stock at $40 a share outstanding. The market price of the common stock averaged $50 during 2025. The tax rate is 40%. In 2025, there were 44,000 shares of convertible preferred stock outstanding. The preferred is $100 par, pays an annual dividend of $3.50 per share, and is convertible into three shares of common stock. Cullumber issued $1,800,000 of 8% convertible bonds at face value during 2024. Each $1,000 bond is convertible into 30 shares of common stock. Instructions Compute diluted earnings per share for 2025. Complete the schedule and show all computations. Net Adjust- Security Incomement Adjusted Net Income Adjust- Adjusted Shares ment Shares EPS 4. MagTech Inc. requires funding to build a new factory and has decided to raise the additional capital by issuing $850,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of 5 warrants for each $1,000 bond sold. The value of the bonds without the warrants is considered to be $775,000, and the value of the warrants in the market is $75,000. The bonds sold in the market at issuance for $825,000. Instructions a. What entry should be made at the time of the issuance of the bonds and warrants? b. If the warrants were nondetachable, would the entries be different? Discuss. 5. Lawson Company issues 50,000 shares of restricted stock to its CFO, on January 1, 2025. The stock has a fair value of $1,100,000 on this date. The service period related to this restricted stock is 4 years. Vesting occurs if the CFO stays with the company for 4 years. The par value of the stock is $1. At December 31, 2025, the fair value of the stock is $1,750,000. Assume that compentation expense is recognized through an annual adjustment process at year end. Instructions a. Prepare the journal entries related to the restricted stock on January 1, 2025 (the date of grant) and December 31, 2026. b. On August 1, 2028, the CFO leaves the company. Prepare the journal entry (if any) to account for this forfeiture. 6. E16.16 (LO 2, 3) (Fair Value and Equity Method Compared) Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2025. The purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2026. Kulikowski reported net income of $730,000 for 2026. The fair value of Kulikowski's stock was $27 per share at December 31, 2026. Instructions a. Prepare the journal entries for Jaycie Phelps Inc. for 2025 and 2026, assuming that Phelps cannot exercise significant influence over Kulikowski. b. Prepare the journal entries for Jaycie Phelps Inc. for 2025 and 2026, assuming that Phelps can exer-cise significant influence over Kulikowski. c. At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2026? What is the total net income reported in 2026 under each of these methods?

3. Cullumber Corp. had $730,000 net income in 2025. On January 1, 2025, there were 200,000 shares of common stock outstanding. On April 1, 23,400 shares were issued and on September 1, Cullumber bought 32,700 shares of treasury stock. There are 28,000 options to buy common stock at $40 a share outstanding. The market price of the common stock averaged $50 during 2025. The tax rate is 40%. In 2025, there were 44,000 shares of convertible preferred stock outstanding. The preferred is $100 par, pays an annual dividend of $3.50 per share, and is convertible into three shares of common stock. Cullumber issued $1,800,000 of 8% convertible bonds at face value during 2024. Each $1,000 bond is convertible into 30 shares of common stock. Instructions Compute diluted earnings per share for 2025. Complete the schedule and show all computations. Net Adjust- Security Incomement Adjusted Net Income Adjust- Adjusted Shares ment Shares EPS 4. MagTech Inc. requires funding to build a new factory and has decided to raise the additional capital by issuing $850,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of 5 warrants for each $1,000 bond sold. The value of the bonds without the warrants is considered to be $775,000, and the value of the warrants in the market is $75,000. The bonds sold in the market at issuance for $825,000. Instructions a. What entry should be made at the time of the issuance of the bonds and warrants? b. If the warrants were nondetachable, would the entries be different? Discuss. 5. Lawson Company issues 50,000 shares of restricted stock to its CFO, on January 1, 2025. The stock has a fair value of $1,100,000 on this date. The service period related to this restricted stock is 4 years. Vesting occurs if the CFO stays with the company for 4 years. The par value of the stock is $1. At December 31, 2025, the fair value of the stock is $1,750,000. Assume that compentation expense is recognized through an annual adjustment process at year end. Instructions a. Prepare the journal entries related to the restricted stock on January 1, 2025 (the date of grant) and December 31, 2026. b. On August 1, 2028, the CFO leaves the company. Prepare the journal entry (if any) to account for this forfeiture. 6. E16.16 (LO 2, 3) (Fair Value and Equity Method Compared) Jaycie Phelps Inc. acquired 20% of the outstanding common stock of Theresa Kulikowski Inc. on December 31, 2025. The purchase price was $1,200,000 for 50,000 shares. Kulikowski Inc. declared and paid an $0.85 per share cash dividend on June 30 and on December 31, 2026. Kulikowski reported net income of $730,000 for 2026. The fair value of Kulikowski's stock was $27 per share at December 31, 2026. Instructions a. Prepare the journal entries for Jaycie Phelps Inc. for 2025 and 2026, assuming that Phelps cannot exercise significant influence over Kulikowski. b. Prepare the journal entries for Jaycie Phelps Inc. for 2025 and 2026, assuming that Phelps can exer-cise significant influence over Kulikowski. c. At what amount is the investment in securities reported on the balance sheet under each of these methods at December 31, 2026? What is the total net income reported in 2026 under each of these methods?

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter16: Retained Earnings And Earnings Per Share

Section: Chapter Questions

Problem 10MC

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