m131bmidterm2practiceexamWITHSOLUTIONS

Intermediate Accounting

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M131B – INTERMEDIATE ACCOUNTING PRACTICE EXAM CHAPTERS 16 (EPS), 17 AND 18 CHAPTER 16 (EPS) 1. On January 1, 2008, Dingler Corporation had 125,000 shares of its $2 par value common stock outstanding. On March 1, Dingler sold an additional 250,000 shares on the open market at $20 per share. Dingler issued a 20% stock dividend on May 1. On August 1, Dingler purchased 140,000 shares and immediately retired the stock. On November 1, 200,000 shares were sold for $25 per share. What is the weighted-average number of shares outstanding for 2008? a. 510,000 b. 375,000 c. 358,333 d. 258,333 b [(125,000 × 2 × 1.20) + (375,000 × 2 × 1.20) + (450,000 × 3) + (310,000 × 3) + (510,000 × 2)] ÷ 12 = 375,000. 2. Hoffman Corporation had net income for the year of $480,000 and a weighted average number of common shares outstanding during the period of 200,000 shares. The company has a convertible bond issue outstanding. The bonds were issued four years ago at par ($2,000,000), carry a 7% interest rate, and are convertible into 40,000 shares of common stock. The company has a 40% tax rate. Diluted earnings per share are a. $1.65 b. $2.23. c. $2.35. d. $2.58.
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c [$480,000 + ($2,000,000 × .07 × .60)] ÷ (200,000 + 40,000) = $2.35. Use the following information for questions 3 and 4 Gilley Co. had 200,000 shares of common stock, 20,000 shares of convertible preferred stock, and $1,000,000 of 10% convertible bonds outstanding during 2007. The preferred stock is convertible into 40,000 shares of common stock. During 2007, Gilley paid dividends of $.90 per share on the common stock and $3.00 per share on the preferred stock. Each $1,000 bond is convertible into 45 shares of common stock. The net income for 2007 was $600,000 and the income tax rate was 30%. 3. Basic earnings per share for 2007 is (rounded to the nearest penny) a. $2.21. b. $2.42. c. $2.51. d. $2.70. $600,000 – (20,000 × $3) d ——————————— = $2.70. 200,000 4. Diluted earnings per share for 2007 is (rounded to the nearest penny) a. $2.14. b. $2.25. c. $2.35. d. $2.46. $600,000 + ($1,000,000 × .10 × .7) c ———————————————— = $2.35. 200,000 + 45,000 + 40,000
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5. At December 31, 2007 Polk Company had 300,000 shares of common stock and 10,000 shares of 5%, $100 par value cumulative preferred stock outstanding. No dividends were declared on either the preferred or common stock in 2007 or 2008. On January 30, 2009, prior to the issuance of its financial statements for the year ended December 31, 2008, Polk declared a 100% stock dividend on its common stock. Net income for 2008 was $950,000. In its 2008 financial statements, Polk's 2008 earnings per common share should be a. $1.50. b. $1.58.
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m131bmidterm2practiceexamWITHSOLUTIONS - M131B INTERMEDIATE...

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