GCU ACC371 week 1 homework

P15-12 (Analysis and Classification of Equity Transactions)Penn Company was formed on July 1, 2012.

It was authorized to issue 300,000 shares of $10 par value common stock and 100,000 shares of 8% $25 par value, cumulative and nonparticipating preferred stock. Penn Company has a July 1–June 30 fiscal year.

The following information relates to the stockholders’ equity accounts of Penn Company:

Common Stock

Prior to the 2014–2015 fiscal year, Penn Company had 110,000 shares of outstanding common stock issued

as follows.

1. 85,000 shares were issued for cash on July 1, 2012, at $31 per share.

2. On July 24, 2012, 5,000 shares were exchanged for a plot of land which cost the seller $70,000 in 2006 and had an estimated fair value of $220,000 on July 24, 2012.

3. 20,000 shares were issued on March 1, 2013, for $42 per share. During the 2014–2015 fiscal year, the following transactions regarding common stock took place.November 30, 2014 Penn purchased 2,000 shares of its own stock on the open market at $39 per share.Penn uses the cost method for treasury stock.December 15, 2014 Penn declared a 5% stock dividend for stockholders of record on January 15, 2015,to be issued on January 31, 2015. Penn was having a liquidity problem and couldnot afford a cash dividend at the time. Penn’s common stock was selling at $52 pershare on December 15, 2014.June 20, 2015 Penn sold 500 shares of its own common stock that it had purchased on November30, 2014, for $21,000.

Preferred Stock

Penn issued 40,000 shares of preferred stock at $44 per share on July 1, 2013.

Cash Dividends

Penn has followed a schedule of declaring cash dividends in December and June, with payment being made to stockholders of record in the following month. The cash dividends which have been declared since inception of the company through June 30, 2015, are shown below:

Declaration Common Preferred

Date Stock Stock

12/15/13 $0.30 per share $1.00 per share

6/15/14 $0.30 per share $1.00 per share

12/15/14 — $1.00 per share

No cash dividends were declared during June 2015 due to the company’s liquidity problems.

Retained Earnings

As of June 30, 2014, Penn’s retained earnings account had a balance of $690,000. For the fiscal year ending

June 30, 2015, Penn reported net income of $40,000.

Instructions

Prepare the stockholders’ equity section of the balance sheet, including appropriate notes, for Penn

Company as of June 30, 2015, as it should appear in its annual report to the shareholders.

P16-7 (Computation of Basic and Diluted EPS)Charles Austin of the controller’s office of Thompson

Corporation was given the assignment of determining the basic and diluted earnings per share values for the year ending December 31, 2015. Austin has compiled the information listed below.

1. The company is authorized to issue 8,000,000 shares of $10 par value common stock. As of December 31, 2014, 2,000,000 shares had been issued and were outstanding.

2. The per share market prices of the common stock on selected dates were as follows.

Price per Share

July 1, 2014 $20.00

January 1, 2015 21.00

April 1, 2015 25.00

July 1, 2015 11.00

August 1, 2015 10.50

November 1, 2015 9.00

December 31, 2015 10.00

3. A total of 700,000 shares of an authorized 1,200,000 shares of convertible preferred stock had been issued on July 1, 2014. The stock was issued at its par value of $25, and it has a cumulative dividend of $3 per share. The stock is convertible into common stock at the rate of one share of convertible preferred for one share of common. The rate of conversion is to be automatically adjusted for stock splits and stock dividends. Dividends are paid quarterly on September 30, December 31, March 31, and June 30.

4. Thompson Corporation is subject to a 40% income tax rate.

5. The after-tax net income for the year ended December 31, 2015, was $11,550,000.

The following specific activities took place during 2015:

1. January 1—A 5% common stock dividend was issued. The dividend had been declared on December 1, 2014, to all stockholders of record on December 29, 2014.

2. April 1—A total of 400,000 shares of the $3 convertible preferred stock was converted into common stock. The company issued new common stock and retired the preferred stock. This was the only conversion of the preferred stock during 2015.

3. July 1—A 2-for-1 split of the common stock became effective on this date. The board of directors had authorized the split on June 1.

4. August 1—A total of 300,000 shares of common stock were issued to acquire a factory building.

5. November 1—A total of 24,000 shares of common stock were purchased on the open market at $9 per share. These shares were to be held as treasury stock and were still in the treasury as of December 31, 2015.

6. Common stock cash dividends—Cash dividends to common stockholders were declared and paid as follows.

April 15—$0.30 per share

October 15—$0.20 per share

7. Preferred stock cash dividends—Cash dividends to preferred stockholders were declared and paid as scheduled.

Instructions

(a)Determine the number of shares used to compute basic earnings per share for the year ended December 31, 2015.

(b)Determine the number of shares used to compute diluted earnings per share for the year ended December 31, 2015.

(c)Compute the adjusted net income to be used as the numerator in the basic earnings per share calculation for the year ended December 31, 2015.