Question

1) Dynatech Inc. reported a net income of $779,000 and a weighted average number of common shares of 276,000 for the year. It also had 51,000 $2 preferred shares.

a. Calculate basic earnings per share assuming the preferred shares are cumulative and the dividend was not paid

b. Calculate basic earnings per share assuming the preferred shares are noncumulative and the dividend was paid

c. Calculate basic earnings per share assuming the preferred shares are noncumulative and the dividend was not paid.

2) Ethel Inc. has 15,000, $3, noncumulative preferred shares and 200,000 common shares issued. What is the total annual dividend on the preferred shares?

$200,000

$400,000

$45,000

$15,000

3) For last year, Casper Corporation reported net income of $625,000, and paid $175,000 in dividends for the 300,000 preferred shares issued. The weighted average of common shares was 1,000,000 shares. Roxy’s basic earnings per share was

$0.63.

$0.33.

$0.15.

$0.45.

4)

Melissa Hoadley and Kelly Quayle borrowed $13,200 on a 7-month, 8% bank loan from BMO Bank of Montreal to open their business, MK’s Coffee House Inc. The money was borrowed on June 1, 2018, and the loan matures January 1, 2019. Interest is due at maturity.

a) Prepare the entry to record the receipt of the funds from the bank loan

b) Prepare the entry to accrue the interest on June 30

5) Stillman Corporation issued $200,000 of 4%, 5-year bonds for proceeds of $182,939. The market interest rate is 6%. Interest is paid semi-annually. How much bond interest expense is recorded on the first interest date?

$4,000

$5,488

$6,000

$3,847

Answer 1

Solution:
1..
a.
EPS= Net income - preferred dividend/ Weighted average no. of share
= $779000-$102000/276000 shares
= $677000/276000 shares
= $2.4529 per share
b.
EPS= Net income - preferred dividend/ Weighted average no. of share
= $779000-$102000/276000 shares
= $677000/276000 shares
= $2.4529 per share
c.
EPS= Net income / Weighted average no. of share
= $779000/276000 shares
= $2.8225 per share
Note:
In case of cumulative preference share ,the dividend will be deducted even if it is not provided .
In case of noncumulative preference share ,the dividend shallbe deducted only when it is provided. .
2..
Answer :
$45,000
Total annual dividend on preffered shares= Number of share * dividend per share
= 15000 shares *$3
= $45000
3..
Answer :
$0.45
EPS= Net income - preferred dividend/ Weighted average no. of share
= $625000-$175000/1000000 shares
= $450000/1000000shares
= $0.45per share

4..
Journal entries:
Date	Particulars	Dr	Cr
		$	$
a)	Cash a/c                                      Dr
1/6/2018	Loan a/c
	(Being Melissa Hoadly and kelly Quayle borred loan from BMO Bank of Montreal .)
b)
30/6/2018	Profit and Loss a/c                     Dr	88
	Interest payable a/c		88
	(Being interesttpayable on 30 june 2018 is ($13200*8%*1month/12 months)
	Note : total interest due on 31st december 2018 is $88*7 months = $616
	Note : It is assumed that Interest rate 8% is annually interest rate .

5..

Answer:

$4,000

Interest expenses recorded on the First interest date is:

=$200000*4%*6 months /12 months

= $8000*6 months /12months

= $4000