Homework Answers
Information Given -
On January 1, 2019, Ayayai issued 10-year, $300000 face value, 6% bonds at par.
Each $1000 bond is convertible into 30 shares of Ayayai's, $2 Par value Common. stock.
The company had 10000 shares of Common stock outstanding throughout its life.
None of the bonds have been converted as of the end of 2020.
.
Answer - Part - (A) -
Journal of Ayayai company
| Date | Particulars | Debit ($) | Credit ($) |
| January 1, 2019 |
Cash Bonds Payable ( Bonds issued at par ) |
300000 - |
- 300000 |
| Total | 300000 | 300000 | |
.
Answer - Part - (B) -
Basic earnings per share and Diluted earnings per share of Ayayai company
| Particulars | Year | |
| 2020 | 2019 | |
| Basic earnings per share [ Refer working note - (1) for calculations ] | 2.6 | 2.4 |
| Diluted earnings per share [ Refer working note - (2) for calculations ] | 2.3158 | 2.2105 |
.
# Working note - (1) - Calculation of Basic earnings per share -
Basic earnings per share = Net Income / Weighted average common shares outstanding
| Calculations | Year | |
| 2020 | 2019 | |
| = $26000 / 10000 shares | 2.6 | - |
| = $24000 / 10000 shares | - | 2.4 |
.
# Working note - (2) - Calculation of Diluted earnings per share -
Diluted earnings per share = Adjusted Net Income ** / (Weighted average common shares outstanding + Diluted shares)
** Adjusted Net Income = Net income + Interest saving on conversion of bonds
| Calculations | Year | |
| 2020 | 2019 | |
|
= [$26000 + ($300000 * 6%)] / (10000 shares + 9000 shares **) = $44000 / 19000 shares |
2.3158 | - |
|
= [$24000 + ($300000 * 6%)] / (10000 shares + 9000 shares **) = $42000 / 19000 shares |
- | 2.2105 |
** Diluted shares = [( $300000 / $1000 ) * 30 shares ] = 9000 shares.
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