Q.

1 A&B
A.Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on Jan 1, 2017 at
102. The bonds were dated Jan 1, 2017 with interest payable June 30 and December 31.
Bond discount is amortized semiannually on a straight-line basis. Each $1,000 debenture is
convertible into 40 shares of Chang $20 par common stock. On Jan 1, 2018, $1,200,000 of
these bonds were converted. What should be the amount of the debit to Interest Expense on
June 30, 2017?
a. $306,000
b. $264,000
c. $270,000
d. $276,000
B.Refer to the information above. Which of the following is the correct journal entry to record
the conversion of the Chang bonds on Jan. 1, 2018?
a. Bonds Payable $1,200,000
Premium on B/P 108,000
Common Stock $960,000
PIC in excess of par – C/S 348,000

b. Bonds Payable $1,200,000

Premium on B/P 21,600
Common Stock $960,000
PIC in excess of par – C/S 261,600

c. Bonds Payable $1,200,000

Common Stock $960,000
PIC in excess of par – C/S 240,000

d. Bonds Payable $1,200,000

Premium on B/P 108,000
Common Stock $480,000
PIC in excess of par – C/S 828,000
Q.2 Computing EPS: Convertible Debt
Shaffer Corporation issued $100,000 10% convertible bonds in 2019 at face value. Each
$1,000 bond is convertible into 100 shares of common stock. Shaffer’s net income for
2020 is $1,824,000; the tax rate is 25%. No bonds were converted during the year
and average common shares outstanding are 1,010,000.
a. Compute basic earnings per share for 2020.
b. Compute diluted earnings per share for 2020.
c. How do the answers to parts a. and b. change if the bonds were issued on July 1,
2020?
Q.3 Computing EP: Stock Options Rand, Inc. had a net income of $80,000. During the year, 200,000
shares were outstanding on average and Rand’s common stock sold at an average market price of $50.
In addition, Rand had 20,000 stock options outstanding to purchase a total of 20,000 common shares at
$25 for each option exercised.

a. Compute basic earnings per share.

b. Compute diluted earnings per share.