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On January 1, 2013, Garner issued 10-year, $100,000 face value, 6% bonds at par. Each $1,000 bond...

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On January 1, 2013, Garner issued 10-year, $100,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2014. (Ignore all tax effects.)

(a) Prepare the journal entry Garner would have made on January 1, 2013, to record the issuance of the bonds. (If no entry is required, select "No entry" for the account titles and enter O for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Date Account Titles and Explanation Debit Credit
Jan. 31, 2013 Cash 100000 __________
Bonds Payable __________ 100000

(b) Garner's net income in 2014 was $29,000 and was $26,000. Compute basic and diluted earnings per share for Garner for 2014 and 2013. (Round answers to 2 decimal places, e.g. 52.75.)

2014 2015
Basic earnings per share $__________ $__________
diluted earnings per share $__________ $__________

Earning Per Share:

Earning per share will be calculated on the basis of the earning available for the equity shares and divided by the number of shares outstanding for the year.

Answer and Explanation:

Calculation of Earning Per Share:

EPS Presentation
2014 2015
Net Income $26,000 $29,000
Basic Earnings Per Share (EPS) $2.60 $2.90
Diluted Earnings Per Share (EPS) $2.46 $2.69
Calculation is shown below:
For 2014 :
Basic EPS :
Net Income $26,000
Outstanding shares 10,000
Basic EPS = $26,000 / 10,000 = $2.60
Diluted EPS :
Net Income $26,000
Add: Interest Savings = 1,00,000 x 6% = $6,000
Adjusted Net Income $32,000
Outstanding shares 10,000
Shares that will be issued on conversion Number of Bonds issued
100 x 30 = 3,000 shares $1,00,000/1,000 = 100
Total Shares = 10,000+3,000 = 13,000
Diluted EPS = $32,000 / 13,000 = $2.46
For 2015 :
Basic EPS :
Net Income $29,000
Outstanding shares 10,000
Basic EPS = $29,000 / 10,000 = $2.90
Diluted EPS :
Net Income $29,000
Add: Interest Savings = 1,00,000 x 6% = $6,000
Adjusted Net Income $35,000
Outstanding shares 10,000
Shares that will be issued on conversion 3,000
Shares that will be issued on conversion Number of Bonds issued
100 x 30 = 3,000 shares $1,00,000/1,000 = 100
Total Shares = 10,000+3,000 = 13,000
Diluted EPS = $35,000 / 13,000 = $2.69


Learn more about this topic:

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How to Calculate Earnings Per Share: Definition & Formula

from Introduction to Business: Homework Help Resource

Chapter 24 / Lesson 14
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