Student_____________________

ACCT 3312.002
Intermediate Accounting II
Chapter 16, Homework Problems
Problem 1:
For each of the unrelated transactions described below,
present the entry(ies) required to record each transaction.
1. Luther Corp. issued $50,000,000 par value 8% convertible bonds at 102. If the bonds had not been
convertible, the companys investment banker estimates they would have been sold at par. Expenses
of issuing the bonds were $750,000.
2. Luther Corp. issued $35,000,000 par value 12% bonds at 101. One detachable stock purchase warrant
was issued with each $1,000 par value bond. At the time of issuance, the warrants were selling for $6.50.
3. On October 31, 2014, Luther Corp. called its 10% convertible debentures for conversion. The
$60,000,000 par value bonds were converted into 600,000 shares of $1 par value common stock. On
October 31, there was $155,000 of unamortized premium applicable to the bonds, and the company
paid an additional $355,000 to the bondholders to induce conversion of all the bonds. The company
records the conversion using the book value method.

Problem 2:
On January 1, 2012, Desert Windows Corporation issued $1,000,000 of 15-year, 12% convertible debentures
at 110. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted
into four shares of Desert Windows Corporation $5 par value common stock after December 31, 2013. On January 1,
2014, $400,000 of the debentures is converted into common stock, which is then selling at $300. An additional
$400,000 of the debentures is converted on May 31, 2014. The market price of the common stock is then $310.
Accrued interest at May 31 will be paid on the next interest date. Bond premium is amortized on a straight-line basis.
Instructions
Make the necessary journal entries needed to record the conversions using the book value method at:
(a) December 31, 2013.
(c) May 31, 2014.
(b) January 1, 2014.
(d) June 30, 2014.

Problem 3:
On July 1, 2013, Hooker Financial Corporation granted 50,000 options to key executives. Each option
allows the executive to purchase one share of Hookers $1 par value common stock at a price of $58
per share. The options were exercisable within a 2-year period beginning July 1, 2015, if the grantee is
still employed by the company at the time of the exercise. On the grant date, Hookers stock was trading
at $50 per share, and a fair value option-pricing model determines total compensation to be $350,000.
On July 1, 2015, 35,000 options were exercised when the market price of Hookers stock was $65 per
share. The remaining options lapsed in 2015 because executives decided not to exercise their options.
Instructions
Prepare the necessary journal entries related to the stock option plan for the years 2013 through 2017.

Problem 4:
On January 1, 2014, Vermont Maple Corp. had 2,650,000 shares of common stock issued and outstanding.
During 2014, it had the following transactions that affected the common stock account.
Mar. 1 Issued 250,000 shares in exchange for land
Apr. 1 Acquired 200,000 shares of treasury stock
July 1 Issued a 20% stock dividend
Sept. 1 Reissued 240,000 shares of treasury stock
(adjusted for 20% stock dividend)
Oct. 1 Issued a 2-for-1 stock split
Instructions
(a) Determine the weighted average number of shares outstanding as of December 31, 2014.
(b) Assume that Vermont Maple Corp. earned net income of $8,352,000 during 2014. In addition, it
had 200,000 shares of 9%, $100 par value nonconvertible, cumulative preferred stock outstanding
for the entire year. Because of liquidity considerations, however, the company did not declare and
pay a preferred dividend in 2013 or 2014. Compute earnings per share for 2014, using the weightedaverage
number of shares determined in part (a).
(c) Assume the same facts as in part (b), except that the preferred stock was noncumulative. Compute
earnings per share for 2014.
(d) Assume the same facts as in part (b), except that net income included a loss from discontinued operations
of $500,000, net of $300,000 in income taxes. Compute earnings per share for 2014.

Problem 5:
Lizbeth Johnson, controller of Detroit Industries, a public company, is currently preparing the calculation
for basic and diluted earnings per share and the related disclosure for Detroits financial statements.
Below is selected financial information for the fiscal year ended March 31, 2014.
4
DETROIT INDUSTRIES
Selected Balance Sheet Information
March 31, 2014
Long-term debt
Notes payable to banks, 12%
4% convertible bonds payable
12% bonds payable
Total long-term debt
Shareholders equity
Preferred stock, 5% cumulative, $100 par value,
100,000 shares authorized, 50,000 shares issued
and outstanding
Common stock, $1 par, 10,000,000 shares authorized,
500,000 shares issued and outstanding
Additional paid-in capital
Retained earnings
Total shareholders equity

$ 4,000,000
8,000,000
3,000,000
$15,000,000

$ 5,000,000
500,000
9,400,000
2,900,000
$17,800,000

The following transactions have also occurred at Detroit.

1. Options were granted on October 1, 2013, to purchase 150,000 shares at $21 per share. Although no options were exercised
during fiscal year 2014, the average price per common share during fiscal year 2014 was $24 per share.
2. Each bond was issued at face value. The 4% convertible bonds will convert into common stock at 30 shares per $1,000 bond.
The bonds are exercisable after 5 years and were issued in fiscal year 2011.
3. The preferred stock was issued in 2012.
4. There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2014.
5. The 500,000 shares of common stock were outstanding for the entire 2014 fiscal year.
6. Net income for fiscal year 2014 was $700,000, and the average income tax rate is 30%.
Instructions
For the fiscal year ended March 31, 2014, calculate the following for Detroit Industries.
(a) Basic earnings per share.
(b) Diluted earnings per share.