1. Ren Inc. owns shares of Stimpy Corporation stock classified as available-for-sale securities. At December 31, 2006, the available-for-sale securities were carried in Ren's accounting records at their cost of $875,000, which equals their market value. On September 21, 2007, when the market value of the securities was $1,400,000, Ren declared a property dividend whereby the Stimpy securities are to be distributed on October 23, 2007, to stockholders of record on October 8, 2007. Prepare all journal entries necessary on those three dates.
2. Sabonis Corporation reported net income of $400,000 in 2008 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,000 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $5 per share. Sabonis' tax rate is 40%. Compute Sabonis' 2008 diluted earnings per share.
(1) 31 Dec 2006 - Debit Available-for-sale 875,000 Credit Cash 875,000 (for purchase of Stimpr Stock). No adjustment entry required at year end as cost is equal to market value.
21 Sep 2007 - Debit Available-for-sale ...
The solution computes journal entries for stock classified as available-for-sale securities and diluted earnings per share for 2 different companies.