1. BE.16.2, Sasha Verbitsky Co has outstanding 1,000 of $ 1,000 bonds, each convertible into 50 shares of $ 10 par value common stock. The bonds are converted on December 31, 2005, when the unamortized discount is $ 30,000 and the market price of the stock is $ 21 per share. Record the conversion using the book value approach. BE.16.10, Green Co had 200,000 shares of common stock outstanding on January 1, 2005. On May 1, Green issued 30,000 shares. (a). Compute the weighted average number of shares outstanding if the 30,000 shares were issued for cash. (b). Compute the weighted average number of shares outstanding if the 30,000 shares were issued in a stock dividend. Exercise 1, 2

2. BE. 16.2, Bonds Payable 1,000,000 Discount on Bonds Payable 30,000 Common Stock (1,000 X 50 X $ 10) 500,000 Paid-in Capital in Excess of Par 470,000 BE. 16.10, (a)(200,000 X 4/12) + (230,000 X 8/12) = 220,000 (b)230,000 Answer of Exercise 1, 2

3. BE.16.12, Sabonis Co reported net income of $ 400,000 in 2005 and had 50,000 shares of common stock outstanding throughout the year. Also outstanding all year were 5,000,000 shares of cumulative preferred stock, each convertible into 2 shares of common. The preferred stock pays an annual dividend of $ 5 per share. Saboni’s tax rate is 40 %. Compute Sabonis’2005 diluted earnings per share. Exercise 3

4. Net income $ 400,000 Weighted average number of shares adjusted for dilutive securities (50,000 + 10,000)÷ 60,000 Diluted EPS $ 6.67. Answer of Exercise 3

5. E.16.28, Howad Corporation earned $ 360,000 during a period when it had an average of 100,000 shares of common stock outstanding. The common stock sold at an average market price of $ 15 per share during the period. Also outstanding were 15,000 warrants that could be exercised to purchase one share of common stock for $ 10 for each warrant exercised. Instructions a. Are the warrants dilutive ? b. Compute basic EPS c. Compute diluted EPS Exercise 4

6. (a)Diluted Warrants menjadi dilutive karena the option price ($ 10) kecil dari average market price ($ 15). Incremental shares = ($ 15 – $ 10) X 15,000 = 5,000 OR Proceeds from assumed exercise : $ 150,000 (15,000 warrants X $10 exercise price) Treasury shares purchasable with proceeds : _ 10,000 ($ 150,000 ÷ $15 average market price) Incremental shares issued : 5,000 (15,000 shares issued less 10,000 purchased) (b)Basic EPS : $ 360,000 : 100,000 shares = $ 3.60 (c)Diluted EPS : $ 360,000 : 105,000 shares = $ 3.43 Answer of Exercise 4