Tara-Anderson-week 6 excel assignment.xlsx

Tara-Anderson-week 6 excel assignment.xlsx - 18-42 HINTS...

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: 18-42 HINTS are in RED Step 1 -Basic EPS: Tara Anderson Net income as reported Less: Preferred dividends paid: June 30 (1,400,000 $0.50) Sept. 30 (1,400,000 $0.50) Dec. 31 (650,000 $0.50) Net income less preferred dividends 700,000 700,000 325,000 Shares outstanding at December 31, 2008 Less: Shares issued on conversion of preferred stock (750,000 X 2) Shares outstanding at Jan. 1, 2008 Computation of weighted-average number of shares: Jan. 1 to Oct. 1 = 7,300,000 X 9/12 = Oct. 1 to Nov. 1 7,300,000 + 2(150,000) = 7,600,000 X 1/12 = Nov. 1 to Dec. 31 7,600,000 + 2(600,000) = 8,800,000 X 2/12 = Weighted-average number of shares Basic EPS ($11,025,000/7,575,000) 18-42. (Concluded) Step 2 Determine whether convertible securities are dilutive: Convertible preferred stock Convertible debentures Impact $1,725,000 1,260,000 Because both convertible securities are lower than basic EPS, they are both potentially dilutive. Whether the securities are actually dilutive depends on the comparison with the recomputed EPS shown in step 3. (1,400,000 2) 6/12 = 1,400,000 (1,250,000 2) 1/12 = 208,333 (650,000 2) 2/12 = 216,667 1,400,000 + 208,333 + 216,667 = 1,825,000 $20,000,000 0.09 0.70 = $1,260,000 20,000 60 = 1,200,000 Step 3-Compute diluted EPS: Number of Description Basic EPS Stock options: Number of shares assumed issued Number of treasury shares assumed repurchased [(500,000 $20)/$25] Incremental shares 500,000 -400,000 100,000 Convertible preferred stock 9% Convertible debentures Diluted EPS 12,750,000 1,725,000 11,025,000 8,800,000 1,500,000 7,300,000 5,475,000 633,333 1,466,667 7,575,000 $1.45 Shares 1825000 1200000 Incremental Impact $0.95 1.05 ey are both potentially dilutive. arison with the recomputed EPS, as Number of Net Income Shares $11,025,000 7,575,000 $11,025,000 100,000 7,675,000 EPS $1.46 1.44 1,725,000 $12,750,000 1,260,000 $14,010,000 1,825,000 9,500,000 1,200,000 10,700,000 0.95 1.34 1.05 1.31 HINTS are in RED 18-43 1 2 Tara Anderson The correct answer is D The correct answer is B Net income Less preferred dividends Net income identified common stock HINT $15,000/26,000 shares = basic earnings per share $17,500 2,500 with $15,000 $0.58 19-40 HINTS are in RED Tara Anderson 2008 Jan. 1 Cash Loan Payable 2,000,000 HINT ~ No entry is made to record the swap agreement because, as of January 1, 2008, the swap has a fair value of $0. Dec. 31 Interest Expense Cash ($2,000,000 × 0.10) 200,000 Interest Rate Swap (asset) 121,494 Other Comprehensive Income HINT ~ Kindall will receive a $40,000 payment [$2,000,000 × (0.12 – 0.10)] at the end of 2009 rate prevailing at January 1, 2009, is the best forecast of the rate that will prevail in subseque $40,000 payment at the end of 2010, 2011, and 2012. This annuity of swap payments has a p 4, I = 12% → $121,494). 2009 Dec. 31 Interest Expense Cash ($2,000,000 × 0.12) Cash (from swap agreement) Interest Rate Swap (net asset) 40,000 Other Comprehensive Income 40,000 Interest Expense Other Comprehensive Income Interest Rate Swap (net liability) 132,120 *Kindall will make a $20,000 payment [$2,000,000(0.10 – 0.09)] at the end of 2010 under t prevailing at January 1, 2010, is the best forecast of the rate that will prevail in subseque $20,000 payment at the end of 2011 and 2012. This annuity of swap payments has a present v ¨ $50,626). The change in the fair value of the interest rate swap during 2009 is computed as fo Hint 2,000,000 200,000 121,494 at the end of 2009 under the swap agreement. In addition, if the prevail in subsequent years, Kindall can also expect to receive a p payments has a present value of $121,494 (PMT = $40,000, N = 240,000 40,000 40,000 132,120 nd of 2010 under the swap agreement. In addition, if the rate revail in subsequent years, Kindall can also expect to make a ents has a present value of $50,626 (PMT = $20,000, N = 3, I = 9% 09 is computed as follows: 19-41 HINTS are in RED Tara Anderson No entry is made to record the forward contract because, as of October 1, 2008, the forward fair value of $0. 2008 Dec. 31 Forward Contract (asset) 2,181,818 Other Comprehensive Income *Present value of estimated receivable under forward contract: [800,000 × ($15 – $12)] = $2,400,000; FV = $2,400,000, N = 1, I = 10% → $2,181,818 The gain is deferred so that it can be matched with the increased lobster cost (part of cos that will result in 2010 from a higher cost of purchasing lobster. 2009 Dec. 31 Other Comprehensive Income 4,584,818 Forward Contract (net liability) Estimated payment to be made on January 1, 2010, under forward contract: $9,600,000 – $7,200,000 = $2,400,000 Change in fair value during 2009: $2,400,000 – (–$2,181,818) = $4,581,818 2010 Jan. 1 1 1 Lobster Inventory Cash Forward Contract (net liability) Cash 7,200,000 Loss on Forward Contract Other Comprehensive Income 2,400,000 2,400,000 The deferred loss recorded in Other Comprehensive Income is recognized in earnings on January 1, 2010, the date of the forecasted transaction (lobster purchase) that was hedged using the lobster forward contract. tober 1, 2008, the forward contract has a lobster cost (part of cost of goods sold) 4,584,818 7,200,000 2,400,000 2,400,000 19-42 2008 HINTS are in RED Jan. 1 *Present value of receivable: (20,000,000 won/800) = $25,000 FV = $25,000, N = 2, I = 10% → $20,661 No entry is made to record the futures contract because, as of January 1, 2008, the futures contract has a fair value of $0. Dec. 31 This entry recognizes 1 year of interest revenue on the 2-year receivable dated January 1, 2008. After this entry, the won receivable has a U.S. dollar carrying value of $22,727 ($20,661 + $2,066). Dec. 31 *Present value of won receivable on December 31, 2008: (20,000,000 won/790) = $25,316 FV = $25,316, N = 1, I = 10% → $23,015 Change in U.S. dollar carrying value: $23,015 – $22,727 = $288 Dec. 31 *Expected futures contract settlement payment on January 1, 2010: (20,000,000 won/790) – (20,000,000 won/800) = $316.46 Present value of expected futures contract settlement payment: FV = $316.46, N = 1, I = 10% → $288 (rounded) (Note: In this case, the foreign currency futures contract is technically not accounted for as a fair value hedge but as a speculation, with gains and losses on the derivative being recognized immediately in income. However, because the foreign currency receivable is remeasured using the current exchange rate at December 31 with the resulting gain being recognized in income, the gain on the foreign currency receivable and the loss on the derivative cancel out one another, and the net effect is the same as if the derivative had been accounted for as a fair value hedge under Statement No. 133.) 19–42. (Concluded) 2009 Dec. 31 This entry recognizes interest revenue on the receivable for 2009. After this entry, the won receivable has a U.S. dollar carrying value of $25,317 ($23,015 + $2,302). Dec. 31 *U.S. dollar value of won receivable on December 31, 2009: (20,000,000 won/830) = $24,096 Change in U.S. dollar carrying value: $25,317 – $24,096 = $1,221 (rounded) Dec. 31 This entry recognizes interest expense for 2009 on the futures contract settlement payable. After this entry, the futures contract payable has a carrying value of $317 ($288 + $29). Dec. 31 Gain on Futures Contract *Expected futures contract settlement receipt on January 1, 2010: (20,000,000 won/800) – (20,000,000 won/830) = $904 Change in fair value of futures contract: $904 – (–$317) = $1,221 (rounded) 2010 Jan. 1 in RED Tara Anderson Won Receivable Sales 20661 20661 e of receivable: on/800) = $25,000 , N = 2, I = 10% → $20,661 made to record the futures contract because, as of 008, the futures contract has a fair value of $0. Won Receivable ($20,661 × 0.10) Interest Revenue 2066 2066 ecognizes 1 year of interest revenue on the 2-year ated January 1, 2008. After this entry, the won as a U.S. dollar carrying value of $22,727 ($20,661 + Won Receivable Gain on Foreign Currency e of won receivable on December 31, 2008: 288 288 on/790) = $25,316 , N = 1, I = 10% → $23,015 .S. dollar carrying value: 2,727 = $288 Loss on Futures Contract Futures Contract utures contract settlement payment on January 1, on/790) – (20,000,000 won/800) = $316.46 e of expected futures contract settlement payment: , N = 1, I = 10% → $288 (rounded) 288 288 is case, the foreign currency futures contract is ot accounted for as a fair value hedge but as a with gains and losses on the derivative being mmediately in income. However, because the foreign eivable is remeasured using the current exchange mber 31 with the resulting gain being recognized in gain on the foreign currency receivable and the loss tive cancel out one another, and the net effect is the he derivative had been accounted for as a fair value Statement No. 133.) (Concluded) Won Receivable ($23,015 × 0.10) Interest Revenue 2302 2302 cognizes interest revenue on the receivable for 2009. try, the won receivable has a U.S. dollar carrying 317 ($23,015 + $2,302). Loss on Foreign Currency Won Receivable 1221 1221 alue of won receivable on December 31, 2009: on/830) = $24,096 .S. dollar carrying value: 4,096 = $1,221 (rounded) Interest Expense ($288 × 0.10) Futures Contract 29 29 ecognizes interest expense for 2009 on the futures lement payable. After this entry, the futures contract a carrying value of $317 ($288 + $29). Futures Contract res Contract tures contract settlement receipt on January 1, 2010: 1221 1221 on/800) – (20,000,000 won/830) = $904 ir value of futures contract: 7) = $1,221 (rounded) Cash (20,000,000/830) Won Receivable Cash (futures contract settlement) Futures Contract 24096 24096 904 904 19-43 HINTS are in RED fonts 2008 Tara Anderson Jan. Dec. 1 Grain Put Option Cash 90,000 90,000 No entry is made on January 1, 2008, to record the forecasted sale of grain to occur in January 2010. 31 Other Comprehensive Income 67,000 Grain Put Option 67,000 This entry adjusts the recorded value of the option to its fair value as of the end of the year. After this entry, the recorded value of the option is $23,000 ($90,000 – $67,000). 2009 Dec. 31 Other Comprehensive Income 23,000 Grain Put Option 23,000 With the price of grain above the option put price, there is no reason to exercise the option; it is better to sell the grain on the open market. Thus, the option will not be exercised on January 1, 2010, and has no value. After this entry, the recorded value of the option is $0. 2010 Jan. 1 Cash (600,000 × $1.35) 810,000 Sales Loss on Grain Put Option Other Comprehensive Income The grain put option is allowed to expire unused. The deferred loss recorded in Other Comprehensive Income in 2008 and 2009 is recognized in earnings on January 1, 2010, the date of the forecasted transaction (grain sales) that was hedged using the grain put option. Both the revenue from the grain sales and the loss from the unused put option will be included in the income statement in the same period. 810,000 90,000 90,000 19-46 All HINTS are in Red Fonts CONTINGENCIES 1 Tara Anderson The following amounts should be reported on the balance sheet as liabilities: (a) The fact that a judgment has been handed down against Southern is a good indication that the contingent liability from the lawsuit is probable. The best estimate of the amount that will be paid is $300,000, so a liability of $300,000 should be recognized. (b) We cant recognize any liability here because we cant really say that this is likely or probable, even though its perfectly Please alright to say its possible (c) $0. There is only a remote likelihood that Southern will have to make payments on the guaranteed loan, so no liability is recognized. 19–46. 2 fill in this yello (Concluded) The following information should be included in notes accompanying the balance sheet of Southern Outpost Co.: (a) A note describing the initial adverse judgment of $600,000 against Southern and the attorney’s opinion that the amount can be reduced by 50%. (b) Reason gain from the litigation is possible but possible Please contingent gains are not disclosed (c) Note disclosure is required for remote possibilities fill in this yello Please fill in this yello (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) 3 (a) Loss from Litigation Liability for Court Judgment 300,000 300,000 (b) No entry is required. (c) No entry is required. Note disclosure of a guarantee is sufficient when the outcome is remote. Please fill in this yellow area with your lease fill in this yellow area with your explanation lease fill in this yellow area with your explanation lease fill in this yellow area with your explanation (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu This should have a numerical number This should have a numerical number llow area with your explanation (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Concluded) (Conclu (Concluded) (Concluded) (Concluded) (Concluded) 19-49 SEGMENT REPORTING All HINTS are in Red Fonts Tara Anderson ProCom Industries Internal Management Report Operating Profit For the Year Ended December 31, 2008 1 Segment 1 Sales Allocated costs Specific costs Operating profit 2 Segment 2 Segment 3 3,500,000 (1,625,000) (1,100,000) 775,000 1,680,000 (780,000) (1,000,000) (100,000) 4,340,000 (2,015,000) (1,300,000) 1,025,000 For upper management to be able to assess things that are happening in a segment internal report is important to have. If the figures are good it will attract competitors and the figures are bad then it will call attention to auditors and this is in external reporting a all information must be within the limits of the FASB guidelines. Segment 4 3,220,000 (1,495,000) (880,000) 845,000 pening in a segment an attract competitors and if in external reporting and Please fill in this yellow area with your explanation 19-52 Tara Anderson 1 A - Disclosed only - it is a guarantee of someone elses debt and it is related to party transaction 2 C - As reporting for an intergral part of an annual period - it better relates to the operation for that annual period Please fill in this yellow area with your explanation Please fill in this yellow area with your explanation ...
View Full Document

Ask a homework question - tutors are online