Soal Kiesio Chapter 16 [PDF]

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E16.1 (LO1) (Issuance and Repurchase of Convertible Bonds) Angela AG issues 2,000 convertible bonds at January 1, 2019. The bonds have a 3-year life and are issued at par with a face value of €1,000 per bond, giving total proceeds of €2,000,000. Interest is payable annually at 6%. Each bond is convertible into 250 ordinary shares (par value of €1). When the bonds are issued, the market rate of interest for similar debt without the conversion option is 8%. Instructions a. Compute the liability and equity component of the convertible bond on January 1, 2019. b. Prepare the journal entry to record the issuance of the convertible bond on January 1, 2019. c. Prepare the journal entry to record the repurchase of the convertible bond for cash at January 1, 2022, its maturity date. E16.2 (LO1) (Issuance and Repurchase of Convertible Bonds) Assume the same information in E16.1, except that Angela AG converts its convertible bonds on January 1, 2020. Instructions a. Compute the carrying value of the bond payable on January 1, 2020. b. Prepare the journal entry to record the conversion on January 1, 2020. c. Assume that the bonds were repurchased on January 1, 2020, for €1,940,000 cash instead of being converted. The net present value of the liability component of the convertible bonds on January 1, 2020, is €1,900,000. Prepare the journal entry to record the repurchase on January 1, 2020. E16.4 (LO1) (Issuance, Conversion, Repurchase of Convertible Bonds) On January 1, 2019, Lin plc issued a convertible bond with a par value of £50,000 in the market for £60,000. The bonds are convertible into 6,000 ordinary shares of £1 per share par value. The bond has a 5-year life and has a stated interest rate of 10% payable annually. The market interest rate for a similar non-convertible bond at January 1, 2019, is 8%. The liability component of the bond is computed to be £53,993. The following bond amortization



schedule is provided for this bond.



Instructions a. Prepare the journal entry to record the issuance of the convertible bond on January 1, 2019. b. Prepare the journal entry to record the payment of interest on December 31, 2020. c. Assume that the bonds were converted on December 31, 2021. The fair value of the liability component of the bond is determined to be £54,000 on December 31, 2021. Prepare the journal entry to record the conversion on December 31, 2021. Assume that the accrual of interest related to 2021 has been recorded. d. Assume that the convertible bonds were repurchased on December 31, 2021, for £55,500 instead of being converted. As indicated, the liability component of the bond is determined to be £54,000 on December 31, 2021. Assume that the accrual of interest related to 2021 has been recorded. e. Assume that the bonds matured on December 31, 2023, and Lin repurchased the bonds. Prepare the entry(ies) to record this transaction.



E16.5 (LO1) (Conversion of Bonds) Schuss SA issued €3,000,000 of 10%, 10-year convertible bonds on April 1, 2019, at 98. The bonds were dated April 1, 2019, with interest payable April 1 and October 1. Bond discount is amortized semiannually using the effective-interest method. The net present value of the bonds without the conversion feature discounted at 12% (its market rate) was €2,655,888. On April 1, 2020, €1,000,000 of these bonds were converted into 30,000 shares of €20 par value ordinary shares. Accrued interest was paid in cash at the time of conversion. Instructions



a. Prepare the entry to record the issuance of the convertible bond on April 1, 2019. b. Prepare the entry to record the interest expense at October 1, 2019. c. Prepare the entry(ies) to record the conversion on April 1, 2020. (The book value method is used.) E16.15 (LO3) (Accounting for Restricted Shares) Lopez SpA issues 10,000 restricted shares to its CFO, Juan Carlos, on January 1, 2019. The shares have a fair value of €500,000 on this date. The service period related to the restricted shares is 5 years. Vesting occurs if Carlos stays with the company for 6 years. The par value of the shares is €10. At December 31, 2019, the fair value of the shares is €450,000. Instructions a. Prepare the journal entries to record the restricted shares on January 1, 2019 (the date of grant), and December 31, 2020. b. On January 1, 2024, Carlos leaves the company. Prepare the journal entry (if any) to account for this forfeiture. E16.17 (LO4) (EPS: Simple Capital Structure) On January 1, 2019, Chang Ltd. had 480,000 ordinary shares outstanding. During 2019, it had the following transactions that affected the ordinary share account.



Instructions a. Determine the weighted-average number of shares outstanding as of December 31, 2019. b. Assume that Chang Ltd. earned net income of ¥3,256,000,000 during 2019. In addition, it had 100,000 shares of 9%, ¥100 par, non-convertible, non-cumulative preference shares outstanding for the entire year. Because of liquidity considerations, however, the company did not declare and pay a preference dividend in 2019. Compute earnings per share for 2019, using the weighted-average ordinary shares determined in part E16.17a.. c. Assume the same facts as in part E16.17b., except that the preference shares were cumulative. Compute earnings per share for 2019.



d. Assume the same facts as in part E16.17b., except that net income included a loss from discontinued operations of ¥432,000,000. The loss from discontinued operations is net of applicable income taxes. Compute earnings per share for 2019. E16.23 (LO5) (EPS with Convertible Bonds, Various Situations) In 2019, Buraka Enterprises issued, at par, 75 1,000, 8% bonds, each convertible into 100 ordinary shares. The liability component of convertible bonds was 950 per bond, based on a market rate of interest of 10%. Buraka had revenues of 17,500 and expenses other than interest and taxes of 8,400 for 2020. (Assume that the tax rate is 40%.) Throughout 2020, 2,000 ordinary shares were outstanding; none of the bonds was converted or redeemed. Instructions a. Compute diluted earnings per share for 2020. b. Assume the same facts as those assumed for part E16.23a., except that the 75 bonds were issued on September 1, 2020 (rather than in 2019), and none have been converted or redeemed. c. Assume the same facts as assumed for part E16.23a., except that 25 of the 75 bonds were actually converted on July 1, 2020 E16.26 (LO1, 5) (EPS with Convertible Bonds and Preference Shares) On January 1, 2019, Lund SA issued 10-year, €3,000,000 face value, 6% bonds, at par. Each €1,000 bond is convertible into 15 ordinary shares of Lund. Lund's net income in 2020 was €240,000, and its tax rate was 40%. Interest expense on the liability component in 2016 was €210,000. The company had 100,000 ordinary shares outstanding throughout 2019. None of the bonds were converted in 2019. Instructions a. Compute diluted earnings per share for 2019. b. Compute diluted earnings per share for 2019, assuming the same facts as above, except that €1,000,000 of 6% convertible preference shares were issued instead of the bonds. Each €100 preference share is convertible into 5 ordinary shares of Lund. E16.27 (LO5) (EPS with Options, Various Situations) Zambrano plc net income for 2019 is £40,000. The only potentially dilutive securities outstanding were 1,000 options issued during 2018, each exercisable for one share at £8. None has been exercised, and 10,000 ordinary shares were outstanding during 2019. The average market price of Zambrano's shares during 2019 was £20. Instructions a. Compute diluted earnings per share. (Round to two decimal places.) b. Assume the same facts as those assumed for part E16.27a., except that the 1,000 options were issued on October 1, 2019 (rather than in 2018). The average market price during the last 3 months of 2019 was £20.