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Acco 320 - Winter 2013 Home Assignment III T. Hagyard/ Kelly F. Late submissions will not be accepted. You may work in groups not exceeding 4 members...

Could I please get help with questions 2 and 3?

Acco 320 - Winter 2013 Home Assignment III T. Hagyard/ Kelly F. Gheyara Please complete this assignment and submit it, in hard copy format, no later than end of class, March , 2013. Late submissions will not be accepted. You may work in groups not exceeding 4 members and submit a joint answer. Please make sure that each submission shows the participant’s name/s, student number/s, Section/s and assignment number on the right hand top corner of the first page of your submission. Question I - 8 Marks On December 31, 2008, Berclair, Inc., had 200 million common shares and 3 million, $9, cumulative convertible preferred shares issued and outstanding. The preferred shares are convertible into 42 million common shares. Berclair issued a 5% common stock dividend on July 1, 2009. On March 1, 2009, Berclair purchased and retired 24 million common shares. 4 million common shares were issued on October 1, 2009. Net income for the year ended December 31, 2009, was $150 million. The income tax rate is 40%. Also outstanding at December 31, 2009, were stock options granted to key executives on September 13, 2008. These call options are exercisable for 30 million common shares at an exercise price of $56 per share. During 2009, the market price of the common shares averaged $70 per share, peaking at $80 on December 31. Put options were granted as compensation, to two senior management executives who retired in 2008. These put options are exercisable for 4.2 million shares at an exercise price of $80 and were outstanding at December 31, 2009. 8% bonds, convertible into 6 million common shares, were issued at face value in 2005; the 2009 interest expense related to these bonds was $5 million. REQUIRED: 1. Compute Berclair’s basic and diluted EPS for the year ended December 31, 2009. Show in detail, all computations and present your results in a well formatted schedule.
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Question II - 8 Marks For the year ended December 31, 2009, Fidelity Engineering reported pretax accounting income of $977,000. Selected information for 2009 from Fidelity’s records follows: Dividend income from taxable Canadian corporations $32,000 CCA claimed on the 2009 tax return in excess of amortization on the income statement 55,000 Carrying amount of amortizable assets in excess of their tax basis at year-end 85,000 Warranty expense reported on the income statement 26,000 Actual warranty expenditures in 2009 16,000 Fidelity’s income tax rate is 40%. At January 1, 2009, Fidelity’s records indicated balances of zero and $12,000 in its future income tax liability accounts, respectively. REQUIRED: 1. Determine the amounts necessary to record income taxes for 2009 and prepare the appropriate journal entry/entries. 2. What is Fidelity’s 2009 net income? 3. Provide a reconciliation between Fidelity’s enacted (statutory) and effective tax rate for the year 2009.
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