Chapter 15

Question 1

Archer Inc. issued $4,000,000 par value, 7% convertible bonds at 99 for cash. If the bonds had not included the conversion feature, they would have sold for 95. Prepare the journal entry to record the issuance of the bonds.

Answer 1

D - Cash (4,000,000 x 0.99): 3,960,000
D - Discount on Bonds Payable: 40,000
C - Bonds Payable (4,000,000 par value): 4,000,000

Question 2

Petrenko Corporation has outstanding 2,000 of $1,000 bonds, each convertible into 50 shares of $10 par value common stock. The bonds are converted on December 31, 2025, when the unamortized discount is $30,000 and the market price of the stock is $21 per share. Record the conversion using the book value approach.

Answer 2

D - Bonds Payable (2,000 x 1,000): 2,000,000
C - Discount on Bonds Payable (unamortized): 30,000
C - Common Stock (2,000 x 50 x 10): 1,000,000
C - Paid-in Capital in Excess of Par - Common Stock: 970,000

Question 3

Pechstein Corporation issued 2,000 shares of $10 par value common stock upon conversion of 1,000 shares of $50 par value preferred stock. The preferred stock was originally issued at $60 per share. The common stock is trading at $26 per share at the time of conversion. Record the conversion of the preferred stock.

Answer 3

D - Preferred Stock (1,000 x 50): 50,000
D - Paid-in Capital in Excess of Par - Preferred Stock (1,000 x (60 - 50): 10,000
C - Common Stock (2,000 x 10): 20,000
C - Paid-in Capital in Excess of Par - Common Stock ((1,000 x 60) - (2,000 x 10)): 40,000

Question 4

Douglas Corporation had 120,000 shares of stock outstanding on January 1, 2025. On May 1, 2025, Douglas issued 60,000 shares. On July 1, Douglas purchased 10,000 treasury shares, which were reissued on October 1. Compute Douglas’s weighted-average number of shares outstanding for 2025.

Answer 4

Question 5

On January 1, 2026, Wilke Corp. had 480,000 shares of common stock outstanding. During 2026, it had the following transactions that affected the common stock account.

• 2/1: Issued 120,000 shares
• 3/1: Issued a 10% stock dividend
• 5/1: Acquired 100,000 shares of treasury stock
• 6/1: Issued a 3-for-1 stock split
• 10/1: Reissued 60,000 shares of treasury stock

a) Determine the weighted-average number of shares outstanding as of December 31, 2026.

b) Assume that Wilke Corp. earned net income of $3,456,000 during 2026. In addition, it had 100,000 shares of 9%, $100 par nonconvertible, noncumulative preferred stock outstanding for the entire year. Because of liquidity considerations, however, the company did not declare and pay a preferred dividend in 2026. Compute earnings per share for 2026, using the weighted-average number of shares determined in part (a).

c) Assume the same facts as in part (b), except that the preferred stock was cumulative. Compute earnings per share for 2026.

d) Assume the same facts as in part (b), except that net income included a loss from discontinued operations of $432,000 (net of tax). Compute earnings per share for 2026.

Answer 5

b)
3,456,000 / 1,762,000 = 1.96

c)
100,000 x 100 x 9% = 900,000
(3,456,000 - 900,000) / 1,762,000 = 1.45

d)
3,456,000 + 432,000 = 3,888,000
3,888,000 / 1,762,000 = 2.21
(432,000) / 1,762,000 = (0.25)
2.21 - 0.25 = 1.96