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# Stock option, convertible securities, diluted EPS

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ABE16-6

On January 1, 2012, Barwood Corporation granted 5,470 options to executives. Each option entitles the holder to purchase one share of Barwood's \$5 par value common stock at \$50 per share at any time during the next 5 years. The market price of the stock is \$66 per share on the date of grant. The fair value of the options at the grant date is \$164,800. The period of benefit is 2 years. Prepare Barwood's journal entries for January 1, 2012, and December 31, 2012 and 2013. (If no entry is required, enter No Entry as the description and 0 as the amount.)

Date Description/Account Debit Credit

1/1/12
12/31/12
12/31/13

ABE16-12

Rockland Corporation earned net income of \$419,700 in 2012 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was \$1,119,200 of 10% bonds, which are convertible into 22,384 shares of common. Rockland's tax rate is 40 percent. Compute Rockland's 2012 diluted earnings per share. (Round answer to 2 decimal places, e.g. 2.13.)

\$______________________________

ABE16-13

DiCenta Corporation reported net income of \$282,000 in 2012 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 6,910 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of \$5 per share. DiCenta' tax rate is 40%. Compute DiCenta' 2012 diluted earnings per share. (Round answer to 2 decimal places, e.g. 5.23.)

\$________________________________

#### Solution Summary

Your tutorial gives instructional notes and the journal entries needed. Click in cells to see computations.

\$2.19

## Myco basic diluted EPS convertible bonds preferred options

At January1,2013 Myco Corporation had outstanding the following securities:
\$1,000,000, 5% cumulative convertible preferred shares,\$50 par; each share is convertible into 2 shares of common stock.
7% convertible bonds, \$2,000,000 face value issued at par (\$1,000) per bond. Each bond is convertible into 30 shares of common stock
\$6,000,000 common stock, \$10 par value

a. On April 1, 2013, Myco purchased 100,000 shares of its common stock as treasury stock.
b. June 30, 2013, Myco issued a 4%stock dividend
c. On October 31, 2013, 50,000 shares of treasury stock were sold.
d. Common stock option outstanding as of 12/31/12 and exercisable in 2013 to purchase 40,000shares at an exercise price of \$30
e. The market price of the stock peaked on October 31,2013 at \$50 an on December 31, 2013 the market price of the stock closed at \$30,; the average market price of stock during 2013 was \$40
f. Net income for the year ended December 31, 2013 was \$1,500,000
g. The income tax rate for 2013 was 40%
Required:
1.Compute Myco 's basic earnings per share for the year ended December 31, 2013.
2. Compute Myco's diluted earnings per share for the year ended December 31, 2013.