Exam Review 1 Solutions

Exam Review 1 Solutions 1. Bond issue price: 100 x $ 1000 x 1.01 = $ 101,000 MV of bonds 100 x 1000 x .97 97,000 MV of warrants 100 x 50 5,000 Total 102,000 Bonds (97,000/102,000) x 101,000 = 96,030 Warrants (5,000/102,000) x 101,000 = 4970 a. Cash Discount BP Cash

96,030 3970

4. Jan.1 Apr.2 Jun 4 Jul 1 Sep.28 Oct. 30 Nov. 27

20,000 x 3 x 1.1 x 2 25,000 x 2 x 1.1 x 2 29,000 x 1 x 1.1 x 2 31,900 x 3 x 2 63,800 x 1 62,800 x 1 63,800 x 1

100,000

4970 PIC – Warrants 4970

5. Jan. 1 10,000 x 4 x 1.2 May 4 12,000 x 6 x 1.2 Oct. 29 14,400 x 2

b. Issue price 101,000 MV of bonds (97,000) Warrants 4,000 Cash Discount BP

PIC – SO 30,000 PIC – Expired SO

97,000 3,000

Basic EPS:

100,000

Warrants 4,000 PIC – Warrants 4,000

2. Preferred Stock PIC – PS CS PIC – CS

132,000 110,000 63,800 191,400 63,800 62,800 63,800 687.600/12 = 57,300 48,000 86,400 28,800 163,200/12 = 13,600

27,760 – 6,000 ------------------13,600

= 1.60

c. Cash (100 x 120) 12,000 PIC-Warrants 4970 CS (100 x $ 100) 10,000 PIC – CS 6970 d. PIC Warrants 4970 PIC Expired Warrants

30,000

4970

500,000 50,000 375,000 175,000

3. For three years, Compensation Expense 40,000 PIC – St.Options 40,000

Continuing operations Extra. Item (2176/13,600) Basic EPS

6. Preferred dividend: 2000 x $ 50 x 9.5% = $ 9,500 Converted into: 2,000 x 3 = 6,000 shares of CS Bond interest: No. of bonds issued: 200,000/1000 per bond = 200 bond Issue price: 200,000 x 1.02 = 204,000 Premium: 4,000/10 = 400/year amortized Interest expense = 200,000 x 5.7% = 11,400 – 400 premium amortization = $ 11,000 Net of tax: 11,000 x (1 - .3) = $ 7,700 Bonds converted: 200 x 22 shares = 4,400

Exercised: (150/200) x 120,000 = 90,000 Expired: (50/200) x 120,000 = 30,000

Basic EPS

Cash PIC – St. Options CS PIC – CS

Diluted EPS

4500 90,000 300 94,200

1.76 (0.16) 1.60

61,500 – 9,500 ------------------- = 20,000

2.60

61,500 + 7,700 ------------------- = 20,000 + 6,000 + 4,400

2.28

7.

Preferred Stock non-cumulative and dividends were NOT declared. 25,000 x 7 x 1.2 210,000 32,000 x 1 x 1.2 38,400 38,400 x 3 115,200 36,400 x 1 36,400 400,000/12 33,333

Premium amortization: 5800/59 = 98 per month

Basic EPS: 150,500/33,333 = 4.51

Year end 2008: BV SFVA MV

Bonds: 200,000/1000 = 200 bonds x 5 = 1,000 shares Interest expense: 200,000 x 10% = 20,000 + 1,000 amortization = 21,000 x (1-.3) = 14,700 Preferred Stock: 3800 x 2.45 = 9310 Options: [(40 – 33)/40] x 4000 = 700 shares Warrants: Non dilutive Diluted EPS: 150,500 + 14,700 --------------------------= 33,333 + 1,000 + 9310 + 700

3.7

510,000 7,500 517,500

Amortization: 10,000/57 months

= 175/month

At conversion: 10,000 – (175 x 21) = 6325 balance in premium Bonds converted: 500,000 x 60% = 300,000 Premium: 6325 x 60% = 3795 300,000 3795

9. Purchase price Interest for 1 month Total HTM securities Interest Receivable Cash

BV 2008: 105,800 – 392 = 105,408 BV 2009: 105,408 – 1176 = 104,232 105,408 (408) 105,000

For AFS: Unrealized g/l – equity SFVA 2009: BV SFVA MV

408 408

104,232 1268 105,500

SFVA (408 + 1268) Unrealized g/l

1676 1676

Trading:

8. Issue price: 500,000 x 1.02 Interest for months Total isuue price

BP Premium CS \ PIC

2008: 98 x 4 = 392 2009: 98 x 12 = 1176

30,000 273,795 105,800 667 106,467

2008 105,800 (800) 105,000 Unrealized g/l – income SFVA

800

10. Jun. 2004 5,000 5,311.8 Dec. 2004 5,000 5,330.51 Jun. 2005 5,000 5,350.34 Dec. 2005 5,000 5,371.36 Jun. 2006 5,000 5,393.64 Dec. 2006 5,000 5,417.26 Jun. 2007 5,000 5,442.29 Dec. 2007 5,000 5,468.83

800

311.8 88,841.8 330.51 89,172.31 350.34 89,522.64 371.36 89,894 393.64 90.287.64 417.26 90,704.90 442.29 91,147.19 468.83 91,616.02

Income Statement for HTM and AFS securities:

105,800 667 106,467

2004: 2005: 2006: 2007:

10,000 + 311.80 + 330.51 10,000 + 350.34 + 371.36 10,000 + 393.64 + 417.26 10,000 + 442.29 + 468.83

Income statement for Trading Securities:

10,000 each year. On the balance sheet: HTM – at BV from the table above on December 31 of each year. Trading: Compare original cost to FMV AFS: Compare BV (from table above) to market values. b. SP BV Gain:

90,000 89,522.64 477.36

11. December 31, 2009 Beem Lenard Taylor Chong

3,000 x $ 8 30,000 x $ 10 4,000 x $ 18 10,000 x $ 15

24,000 33,000 300,000 150,000 72,000 120,000 150,000 119,800 546,000 422,800

SFVA: 546,000 – 422,800 Balance from last year Adjustment this year

123,200 (70,000) 53,200

Sale of Beem: SP 20,000 – 150 Cost: (2,000/5,000) x 55,000 Loss:

19,850 22,000 2150

12. Investment + earnings year 1 - dividends year 1 + earnings year 2 - dividends year 2 Balance

200,000 40,000 (32,000) 48,000 36,000 220,000

Cost of shares sold: (3,000/8,000) x 220,000 Selling price Gain:

82,500 85,000 2,500