8. The Gradowski Corporation had net income of $ 150,000 during 19x5, with 10,000 shares of common stock outstanding. It also had 1,000 shares of nonconvertible 5% $ 100 par preferred stock, and $ 25,000 par, 6% bonds convertible into 1,000 shares of common stock after 3 years. Assume a tax rate of 30% and compute basic and diluted EPS. 8a. If the bonds were only outstanding for half the year, how would diluted EPS change? 8b. If this bond has an annual discount amortization of $ 600, how much in interest savings should be added to the numerator?

8. The Gradowski Corporation had net income of $ 150,000 during 19x5, with 10,000 shares of common stock outstanding. It also had 1,000 shares of nonconvertible 5% $ 100 par preferred stock, and $ 25,000 par, 6% bonds convertible into 1,000 shares of common stock after 3 years. Assume a tax rate of 30% and compute basic and diluted EPS. 8a. If the bonds were only outstanding for half the year, how would diluted EPS change? 8b. If this bond has an annual discount amortization of $ 600, how much in interest savings should be added to the numerator?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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I. Metro Company purchased $500,000, 10%, 5-year bonds on January 1, 20x1, with interest payable on July 1 and January 1. The market interest rate (yield) was 8% for bonds of similar risk and maturity. The market value on December 31, 20x1 was $555,000 and all bonds were sold for $507,500 on January 1, 20x2 after the second payment. Required: compute the bond price on January 1, 20x1, prepare the amortization schedule and record journal entries on January 1, 20x1, July 1, 20x1, December 31, 20x1 and January 1, 20x2 assuming the bond investment is classified as available-for-sale security.
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