Scutaro Company reported net income in 2025 of $30, 000 and $27,000 in 2024. On January 1, 2024, Scutaro issued 10-year, $200,000 face value, 6% bonds at par (payable annually on January 1). Each $1,000 bond is convertible into 30 shares of Scutaro S2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2025. Scutaro also has adopted a stock option plan that granted options to key executives to purchase 4,000 shares of the company's common stock. The options were granted on January 2, 2024, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company (the service period is 2 years). The options expired 6 years from the date of grant. The option price was set at $4. INSTRUCTIONS Prepare the journal entry Scutaro would have made on January 1, 2024, to record the issuance of the bonds. Prepare the journal entry to record interest expense in 2025. Compute basic and diluted earnings per share for Scutaro for 2025 and 2024, Scutaro's average stock price was $4.40 in 2024 and $5 in 2025. (Ignore income taxes.) Assume that 75% of the holders of Scutaro's convertible bonds convert their bonds to stock on June 30, 2026, when Scutaro's stock is trading at $8 per share. Scutaro pays $2 per bond to induce bondholders to convert. Prepare the journal entry to record the conversion.
Scutaro Company reported net income in 2025 of $30, 000 and $27,000 in 2024. On January 1, 2024, Scutaro issued 10-year, $200,000 face
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