Shares outstanding 100000 Add Shares assumed to be issued 10000 5 50000 Shares

Shares outstanding 100000 add shares assumed to be

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Shares outstanding 100,000 Add: Shares assumed to be issued (10,000 * 5) 50,000 Shares outstanding adjusted for dilutive securities 150,000 $1,000,000/$100 = 10,000 Diluted EPS: ($240,000 - $0)/ $150,000 = $1.60 Note: Preferred dividends are not deducted since preferred stock was assumed converted into common stock.
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E16-26 (EPS with Options, Various Situations) Now E16-26 Zambrano Company's net income for 2010 is $40,000. The only potentially dilutive securities outstanding were 1,000 options issued during 2009, each exercisable for one share at $8. None has been exercised and 10,000 shares of common were outstanding during 2010. The average market price of Zambrano's stock during 2010 was $20. Instructions (a) Compute diluted earnings per share (b) Assume the same facts as those assumed for part (a), except that the 1,000 options were issued on October 1, 2010 (rather than in 2009.) The average market price during the last 3 months of 2010 was $20. Diluted (a) Shares assumed issued on exercise 1,000 Proceeds (1,000 * $8 = $8,000) Less: Treasury shares purchasable: $8,000/$20 400 Incremental shares 600 Diluted EPS = $40,000 = $3.77 10,000 +600 (b) Diluted Shares assumed issued on exercise 1,000 Proceeds = $8,000 Less: Treasury shares purchased ($8,000/$20) 400 600 Incremental shares X 3/12 150 Diluted EPS = $40,000 = $3.94 10,000 + 150
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END OF IN-CLASS PROBLEM BEGIN REVIEW PROBLEMS
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Exercise 16-2  (Conversion of Bonds) Schuss Inc. Issued $3,000,000 of 10% , 10-year convertible bonds on June 1, 2010 at 98 plus accrued interest. The bonds were dated April 1, 2010, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2011, $1,000,000 of these bonds were converted into 30,000 shares of $20 par value common stock. Acrued interest was paid in cash at the time of conversion. Instructions: (a)  Prepare the entry to record the interest expense at October 1, 2010.  Assume that accrued interest payable was credited when the bonds were  issued (Round to the nearest dollar). Interest Payable ($150,000 X 2/6) 50,000 Interest Expense ($150,000 X 4/6) + $2,032 102,032 Discount on Bonds Payable 2,032 Cash ($3,000,000 X 10% ÷ 2) 150,000 Calculations: Par value $3,000,000 Issuance price 2,940,000 Total discount $60,000 Months remaining 118 Discount per month ($60,000 ÷ 118) 508 Discount amortized (4 X $508) 2,034 (b)  Prepare the entry (ies) to record the conversion on April 1, 2011. (The  book value method is used. ) Assume that the entry to record amortization  of the bond discount and interest payment has been made. Bonds Payable 1,000,000 Discount on Bonds Payable 18,305 Common Stock (30,000 X $20) 600,000 Paid-in Capital in Excess of Par 381,695* *($1,000,000 – $18,305) – $600,000 Calculations: Discount related to 1/3 of the bonds ($60,000 X 1/3) $20,000 Less: Discount amortized [($60,000 ÷ 118) X 10 X 1/3] 1,695 Unamortized bond discount $18,305
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Exercise 16-9  (Issuance of Bonds with Stock Warrants) On May 1, 2010, Barkley Company issued 3,000 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 98, but the market value of the warrants cannot be determined.
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