E15-5

Warren Corporation was organized on January 1, 2011, with an authorization of 500,000 shares

of common stock ($5 par value per share). During 2011, the company had the following  capital

transactions:      

  January 5     Issued 100,000 shares at $5 per share   

  April 6     Issued 50,000 shares at $7 per share   

  June 8     Issued 15,000 shares at $10 per share   

  July 28     Purchased 25,000 shares at $4 per share   

  December 31     Sold 25,000 shares held in treasury at $8 per share            

 Required:

 What should be the balance in the Additional paid-in capital account at December 31, 2011?

 

E15-13

Tam Company’s net income for the year ending December 31, 2011, was $10,000. During

the year, Tam declared and paid $1,000 cash dividends on preferred stock and $1,750 cash

dividends on common stock. At December 31, 2011, the company had 12,000 shares of

common stock issued and outstanding—10,000 had been issued and outstanding throughout the year and 2,000 were issued on July 1, 2011. No other common stock transactions

occurred during the year, and the 5,000 shares of preferred stock are not convertible into

common shares. 

 Required:

 What should be the 2011 earnings per common share of Tam Company, rounded to the nearest penny?

 

E15-14

Fountain Inc. has 5,000,000 shares of common stock outstanding on January 1, 2011. It issued

an additional 1,000,000 shares of common stock on April 1, 2011, and 500,000 more on July 1,

2011. On October 1, 2011, Fountain issued 10,000 convertible bonds; each one had a $1,000face value and paid 7% interest. Each bond is convertible into 40 shares of common stock. No

bonds were converted during 2011. 

 Required:

 What number of shares should be used in computing basic EPS and diluted EPS, respectively?

 

E15-16

On July 18, 2011, Amos Corporation granted nontransferable options to certain key employees as additional compensation. The options permit the purchase of 20,000 shares of Amos’s

common stock at a price of $30 per share. On the grant date, the stock’s market value was

$42 per share. The options were exercisable beginning January 1, 2012, and expire on December 31, 2015. On February 3, 2012, when the stock was selling for $45 per share, all options

were exercised. 

 Required:

 How much compensation expense should Amos have recorded in 2011 and 2012 if the options

are worth $17 per share on the grant date?

 

P15-12

 

Trask Corporation, a public company whose shares are traded in the over-the-counter market,

had the following shareholders’ equity account balances at December 31, 2010:      

Common stock     $ 7,875,000   

  Additional paid-in capital     15,750,000   

  Retained earnings     16,445,000   

  Treasury common stock     750,000      

      Transactions during 2011 and other information relating to the shareholders’ equity

 accounts follow:

  •   As of January 1, 2011, Trask had 4,000,000 authorized shares of $5 par-value common

stock; it had issued 1,575,000 shares of which 75,000 were held in treasury. 

  •   On January 21, 2011, Trask issued 50,000 shares of $100 par value, 6% cumulative preferred stock at par in exchange for all of Rover Company’s assets and liabilities. On that

date, the net carrying amount of Rover’s assets and liabilities equaled their fair values.

• On January 22, 2011, Rover distributed the Trask shares to its stockholders in a complete liquidation and dissolution of Rover. Trask had 150,000 authorized shares of

 preferred stock. 

  •   On February 17, 2011, Trask formally retired 25,000 of 75,000 treasury common stock

shares. The shares were originally issued at $15 per share and had been acquired on

 September 25, 2010, for $10 per share. 

  •   Trask owned 15,000 shares of Harbor Inc. common stock purchased in 2010 for $600,000.

The Harbor stock shares were trading securities. On March 5, 2011, Trask declared a

property dividend of one share of Harbor common stock for every 100 shares of Trask

common stock held by a shareholder of record on April 16, 2011. Harbor stock’s market

price on March 5, 2011, was $60 per share. The property dividend was distributed on

April 29, 2011. 

  •   On January 2, 2009, Trask granted stock options to employees to purchase 200,000 shares

of the company’s common stock at $12 per share, which was also the market price on that

date. The options had a grant date fair value of $1.50 per share and are exercisable within

a three-year period, beginning January 2, 2011. On June 1, 2011, employees exercised

150,000 options when the stock’s market value was $25 per share. Trask issued new shares

to settle the transaction. 

  •   On October 27, 2011, Trask declared a two-for-one stock split on its common stock and

reduced the per share par value accordingly. Trask shareholders of record on August 2,

2011, received one additional share of Trask common stock for each share of Trask common stock held. The laws of Trask’s state of incorporation protect treasury stock from

dilution. 

  •   On December 12, 2011, Trask declared the yearly cash dividend on preferred stock,

 payable on January 11, 2012, to shareholders of record on December 31, 2011. 

  •   On January 16, 2012, before the accounting records were closed for 2011, Trask learned

that depreciation expense had been understated by $350,000 for the year ended December 31, 2010. The after-tax effect on 2010 net income was $245,000. The appropriate

 correcting entry was recorded on the same day.   

  Net income for 2011 was $2,400,000. 

 Required: 

  1.   Prepare Trask’s statement of retained earnings for the year ended December 31, 2011. 

  2.   Prepare the shareholders’ equity section of Trask’s balance sheet at December 31,

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