Part B (16 marks) On 1 January 2021, Warren Corporation had 1,200,000 ordinary shares outstanding. During...

  

Transcribed Image Text:

Part B (16 marks) On 1 January 2021, Warren Corporation had 1,200,000 ordinary shares outstanding. During 2021, the company has the following transactions affecting its' ordinary shares. On 1 March, the corporation issued 150,000 new shares to raise additional capital. On 1 July, the corporation declared and issued a 2-for-1 share split. On 1 October, the corporation purchased on the market 600,000 of its own outstanding shares and retired them. Warren Corporation had 100,000 shares of 9%, $10 par, non-cumulative preference shares outstanding for the entire year. The company declared and paid the preference dividend in 2021. (v) The net income of Warren Corporation for 2021 is $240,000. (ii) (iii) (iv) Warren Corporation granted 1,000,000 share options in 2020. Each option could be exercised for ONE ordinary share at $8. The average market price of Warren Corporation's ordinary shares during 2021 was $20 per share. None of the share options was exercised as of 31 December 2021. Required: (Support with detailed calculations.) B1. Compute the weighted-average number of ordinary shares outstanding for 2021. B2. Compute the basic earnings per share for 2021. B3. Compute the diluted earnings per share for 2021. (Rounded to three decimals.) ● ● ● (6 marks) (4 marks) (6 marks) [Total for Question 2: 30 marks] Question 2 (30 marks) Part A (14 marks) On 1 January 2019, Lin Company issued a convertible bond with a par value of $100,000 in the market for $120,000. (i) The bonds are convertible into 12,000 ordinary shares with a par value of $1 per share. (ii) The bond has a 5-year life and has a stated interest rate of 10%. (iii) Interest payment will be made annually on 31 December, starting from 31 December 2019. (iv) The market interest rate for a similar non-convertible bond is 8%. The following bond amortization schedule is provided for the liability component of the bond. Interest Expense Premium Amortized Carrying Amount of Bonds Date 1/1/19 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Cash Paid $ 10,000 10,000 10,000 10,000 10,000 $ 8,639 8,530 8,412 8,285 8,148 $ 1,361 1,470 1,588 1,715 1,852 $ 107,986 106,625 105,155 103,567 101,852 100,000 Required: (Support with detailed calculations.) A1. Prepare the journal entry to record the issuance of the convertible bond on 1 January 2019. (6 marks) A2. Assume that Lin Company repurchased the convertible bond on 31 December 2021 for $111,000. On 31 December 2021, the fair value of the liability component of the bond was $108,000. Lin Company already recorded the interest related to the bonds in 2021. Prepare the journal entries to record the repurchase of the bonds on 31 December 2021. (8 marks) Part B (16 marks) On 1 January 2021, Warren Corporation had 1,200,000 ordinary shares outstanding. During 2021, the company has the following transactions affecting its' ordinary shares. On 1 March, the corporation issued 150,000 new shares to raise additional capital. On 1 July, the corporation declared and issued a 2-for-1 share split. On 1 October, the corporation purchased on the market 600,000 of its own outstanding shares and retired them. Warren Corporation had 100,000 shares of 9%, $10 par, non-cumulative preference shares outstanding for the entire year. The company declared and paid the preference dividend in 2021. (v) The net income of Warren Corporation for 2021 is $240,000. (ii) (iii) (iv) Warren Corporation granted 1,000,000 share options in 2020. Each option could be exercised for ONE ordinary share at $8. The average market price of Warren Corporation's ordinary shares during 2021 was $20 per share. None of the share options was exercised as of 31 December 2021. Required: (Support with detailed calculations.) B1. Compute the weighted-average number of ordinary shares outstanding for 2021. B2. Compute the basic earnings per share for 2021. B3. Compute the diluted earnings per share for 2021. (Rounded to three decimals.) ● ● ● (6 marks) (4 marks) (6 marks) [Total for Question 2: 30 marks] Question 2 (30 marks) Part A (14 marks) On 1 January 2019, Lin Company issued a convertible bond with a par value of $100,000 in the market for $120,000. (i) The bonds are convertible into 12,000 ordinary shares with a par value of $1 per share. (ii) The bond has a 5-year life and has a stated interest rate of 10%. (iii) Interest payment will be made annually on 31 December, starting from 31 December 2019. (iv) The market interest rate for a similar non-convertible bond is 8%. The following bond amortization schedule is provided for the liability component of the bond. Interest Expense Premium Amortized Carrying Amount of Bonds Date 1/1/19 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Cash Paid $ 10,000 10,000 10,000 10,000 10,000 $ 8,639 8,530 8,412 8,285 8,148 $ 1,361 1,470 1,588 1,715 1,852 $ 107,986 106,625 105,155 103,567 101,852 100,000 Required: (Support with detailed calculations.) A1. Prepare the journal entry to record the issuance of the convertible bond on 1 January 2019. (6 marks) A2. Assume that Lin Company repurchased the convertible bond on 31 December 2021 for $111,000. On 31 December 2021, the fair value of the liability component of the bond was $108,000. Lin Company already recorded the interest related to the bonds in 2021. Prepare the journal entries to record the repurchase of the bonds on 31 December 2021. (8 marks)

Answer rating: 100% (QA)

1 Weighted average shares 2500000 Calculated as below Date Transaction Shares Outstanding 0101 Begin... View the full answer