The value of basic and diluted earnings per share of the company. Giveninformation: Common shares outstanding are 320,000. Additional shares issued on August 1 are 120,000 shares. 4% non cumulative preferred stock at the beginning of year is $920,000. Preferred shared can be converted into 10,000 shares of common stock. Value of bonds outstanding for full year is $8,000,000. Outstanding shares of convertible options are 180,000 shares. Effective tax rate is 40%. Net income is $2,800,000.

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Answer 1

Question

Chapter 20, Problem 20.1P

a.

To determine

The value of basic and diluted earnings per share of the company.

Giveninformation:

Common shares outstanding are 320,000.

Additional shares issued on August 1 are 120,000 shares.

4% non cumulative preferred stock at the beginning of year is $920,000.

Preferred shared can be converted into 10,000 shares of common stock.

Value of bonds outstanding for full year is $8,000,000.

Outstanding shares of convertible options are 180,000 shares.

Effective tax rate is 40%.

Net income is $2,800,000.

b.

To determine

To prepare: The earnings per share disclosure on the income statement beginning with income of continuous operations.

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JH, Inc., is a calendar year, accrual basis corporation with Joe as its sole shareholder (basis in his stock is $90,000). On January 1 of the current year, JH Corporation has accumulated E & P of $200,000. Before considering the effect of the distribution described below, the corporation’s current E & P is $50,000. On November 1, JH distributes an office building to Joe. The office building has an adjusted basis of $80,000 (fair market value of $100,000) and is subject to a mortgage of $110,000. Assume that the building has been depreciated using the ADS method for both income tax and E & P purposes. What are the tax consequences of the distribution to JH and to Joe? (In your answer, be sure to describe the effects on taxable income for both JH and Joe, the impact of the distribution on JH’s E & P, and Joe’s basis in the building.)

Joe is the sole shareholder of JH Corporation. Joe sold his stock to Ethan on October 31 for $150,000. Joe’s basis in JH stock was $50,000 at the start of the year. JH distributed land to Joe immediately before the sale. JH’s basis in the land was $20,000 (fair market value of $25,000). On December 31, Ethan received a $75,000 cash distribution from JH. During the year, JH has $20,000 of current E & P and its accumulated E & P balance on January 1 is $10,000. Which of the following statements is true? a. Joe recognizes a $110,000 gain on the sale of his stock. b. Joe recognizes a $100,000 gain on the sale of his stock. c. Ethan receives $5,000 of dividend income.d. Joe receives $20,000 of dividend income. e. None of the above.

Answer 2

Question

Chapter 20, Problem 20.1P

a.

To determine

The value of basic and diluted earnings per share of the company.

Giveninformation:

Common shares outstanding are 320,000.

Additional shares issued on August 1 are 120,000 shares.

4% non cumulative preferred stock at the beginning of year is $920,000.

Preferred shared can be converted into 10,000 shares of common stock.

Value of bonds outstanding for full year is $8,000,000.

Outstanding shares of convertible options are 180,000 shares.

Effective tax rate is 40%.

Net income is $2,800,000.

b.

To determine

To prepare: The earnings per share disclosure on the income statement beginning with income of continuous operations.

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Answer 3

Question

Chapter 20, Problem 20.1P

a.

To determine

The value of basic and diluted earnings per share of the company.

Giveninformation:

Common shares outstanding are 320,000.

Additional shares issued on August 1 are 120,000 shares.

4% non cumulative preferred stock at the beginning of year is $920,000.

Preferred shared can be converted into 10,000 shares of common stock.

Value of bonds outstanding for full year is $8,000,000.

Outstanding shares of convertible options are 180,000 shares.

Effective tax rate is 40%.

Net income is $2,800,000.

b.

To determine

To prepare: The earnings per share disclosure on the income statement beginning with income of continuous operations.

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Answer 4

Question

Chapter 20, Problem 20.1P

a.

To determine

The value of basic and diluted earnings per share of the company.

Giveninformation:

Common shares outstanding are 320,000.

Additional shares issued on August 1 are 120,000 shares.

4% non cumulative preferred stock at the beginning of year is $920,000.

Preferred shared can be converted into 10,000 shares of common stock.

Value of bonds outstanding for full year is $8,000,000.

Outstanding shares of convertible options are 180,000 shares.

Effective tax rate is 40%.

Net income is $2,800,000.

b.

To determine

To prepare: The earnings per share disclosure on the income statement beginning with income of continuous operations.

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Answer 5

Chapter 20, Problem 20.1P

a.

To determine

The value of basic and diluted earnings per share of the company.

Giveninformation:

Common shares outstanding are 320,000.

Additional shares issued on August 1 are 120,000 shares.

4% non cumulative preferred stock at the beginning of year is $920,000.

Preferred shared can be converted into 10,000 shares of common stock.

Value of bonds outstanding for full year is $8,000,000.

Outstanding shares of convertible options are 180,000 shares.

Effective tax rate is 40%.

Net income is $2,800,000.

b.

To determine

To prepare: The earnings per share disclosure on the income statement beginning with income of continuous operations.

Answer 6

Chapter 20, Problem 20.1P

a.

To determine

The value of basic and diluted earnings per share of the company.

Giveninformation:

Common shares outstanding are 320,000.

Additional shares issued on August 1 are 120,000 shares.

4% non cumulative preferred stock at the beginning of year is $920,000.

Preferred shared can be converted into 10,000 shares of common stock.

Value of bonds outstanding for full year is $8,000,000.

Outstanding shares of convertible options are 180,000 shares.

Effective tax rate is 40%.

Net income is $2,800,000.

Answer 7

Chapter 20, Problem 20.1P

a.

To determine

The value of basic and diluted earnings per share of the company.

Giveninformation:

Common shares outstanding are 320,000.

Additional shares issued on August 1 are 120,000 shares.

4% non cumulative preferred stock at the beginning of year is $920,000.

Preferred shared can be converted into 10,000 shares of common stock.

Value of bonds outstanding for full year is $8,000,000.

Outstanding shares of convertible options are 180,000 shares.

Effective tax rate is 40%.

Net income is $2,800,000.

Answer 8

b.

To determine

To prepare: The earnings per share disclosure on the income statement beginning with income of continuous operations.

Answer 9

b.

To determine

To prepare: The earnings per share disclosure on the income statement beginning with income of continuous operations.

Answer 10

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Answer 11

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Answer 12

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Answer 13

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To prepare: The earnings per share disclosure on the income statement beginning with income of continuous operations.

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