On January 1, 2013, Garner issued 10-year, $100,000 face value, 6% bonds at par.

Question

On January 1, 2013, Garner issued 10-year, $100,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2014. (Ignore all tax effects.) (a) Your answer is correct. Prepare the journal entry Garner would have made on January 1, 2013, to record the issuance of the bonds.(If no entry is required, select "No entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when amount is entered. Do not indent manually.) DateAccount Titles and Explanation Debit Credit Jan. 31, 2013 TCash 100000 Bonds Payable 100000

Explanation / Answer

Solution:

(b) Garner's net income in 2014 was $29,000 and was $26,000 in 2013. Compute basic and diluted earnings per share for Garner for 2014 and 2013.

Solution:

EPS Presentation 2013 2014 Net Income $26,000 $29,000 Basic Earnings Per Share (EPS) $2.60 $2.90 Diluted Earnings Per Share (EPS) $2.46 $2.69 Calculation is shown below: For 2013 : Basic EPS : Net Income $26,000 Outstanding shares 10,000 Basic EPS = $26,000 / 10,000 = $2.60 Diluted EPS : Net Income $26,000 Add: Interest Savings = 1,00,000 x 6% = $6,000 Adjusted Net Income $32,000 Outstanding shares 10,000 Shares that will be issued on conversion Number of Bonds issued 100 x 30 = 3,000 shares $1,00,000/1,000 = 100 Total Shares = 10,000+3,000 = 13,000 Diluted EPS = $32,000 / 13,000 = $2.46 For 2014 : Basic EPS : Net Income $29,000 Outstanding shares 10,000 Basic EPS = $29,000 / 10,000 = $2.90 Diluted EPS : Net Income $29,000 Add: Interest Savings = 1,00,000 x 6% = $6,000 Adjusted Net Income $35,000 Outstanding shares 10,000 Shares that will be issued on conversion 3,000 Shares that will be issued on conversion Number of Bonds issued 100 x 30 = 3,000 shares $1,00,000/1,000 = 100 Total Shares = 10,000+3,000 = 13,000 Diluted EPS = $35,000 / 13,000 = $2.69

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