Question

Q16: Suppose a firm issues a 1,000 Convertible Preference Shares for with a par value of $100 each. Each preference share is convertible into 5 Ordinary Shares with a par value of $5. The credit entry to “Share Premium – Conversion Equity” on the date of issue was for $200,000.   Assume that the maturity date of the Convertible Shares has now arrived and the Convertible Preference Shares will be converted into Ordinary Shares.

The Credit Entry to the “Share Premium – Conversion Equity” account on the date of conversion will be for an amount of:

Q17: Suppose a firm issues 2,000 Convertible Preference shares with a par value of $2 per share. The shares were issued at a price of $50 per share. The journal entry to record the transaction at the date of issue is:

a. Debit: Cash $100,000. Credit: Share Capital - Preference, $96,000. Share Premium – Conversion Equity: $4,000.

b. Debit: Cash $100,000. Credit: Share Capital - Preference, $4,000. Share Premium – Conversion Equity: $96,000.

c. Debit: Cash $100,000. Credit: Share Capital - Preference, $4,000. Share Premium – Preference: $96,000.

d. Debit: Cash $200,000. Credit: Share Capital - Preference, $199,000. Share Premium – Preference: $1,000.

e. None of these answers

Q18: Suppose a firm earns Net Income of $1,000,000. The company does not pay dividends.

At the start of the financial year the firm had 980,000 Ordinary Shares. On 31 March, the firm issued 20,000 Ordinary Shares for Cash. On 30 September, the firm issued a further 20,000 Ordinary Shares for Cash.     

The firm’s Earnings Per Share (EPS) is:

Q19: A Convertible Bond is one which:

a. Grants the holder a car with a fully flexible roof

b. May be either converted into Ordinary Shares or may be repurchased (i.e., repaid)

c. Must be repaid in full in cash

d. Must be converted in full into Ordinary shares

e. None of these answers

Q20: Suppose a firm earns Net Income of $1,200,000. The company pays an Ordinary Dividend of $400,000 and a Preference Dividend of $200,000. Throughout the financial year, the firm has 100,000 Ordinary Shares and 200,000 Preference Shares. The firm’s Earnings Per Share (EPS) is:

Q21: Suppose a firm issues a 1,000 Convertible Preference Shares for with a par value of $100 each. Each preference share is convertible into 5 Ordinary Shares with a par value of $5. The credit entry to “Share Premium – Conversion Equity” on the date of issue was for $200,000.   Assume that the maturity date of the Convertible Shares has now arrived and the Convertible Preference Shares will be converted into Ordinary Shares.

The Entry to the “Share Capital – Preference” account on the date of conversion will be for an amount of:

a. $100,000

b. $250,000

c. $25,000

d. $10,000

e. None of these answers

Answer 1

16) 1000 preference shares @100$ each issued at a premium of 200000$

Each preference share = 5 equity share of 5$ each

Par value 100$ = Par value of 25$ equity (on conversion)

premium per preference share = 75$

Credit to share premium - ordinary equity =75000$+200000$ = 275000$

Earlier credit has to be reversed and recredited to "share premium - ordinary equity"

17)Answer is(b)

18)

Additional shares acquired
Date / Particulars	Number of shares	Number of months	Weighted average
Opening	980000	12	980000
Issues
Mar-31	20000	9	15000
Sep-30	20000	3	5000
Earnings per share	9.26

Net Income $1,000,000.

  

The firm’s Earnings Per Share (EPS) is: Profit available to equity shares / Weighted average number of equity shares.

19) (b)

20)
Net income	1200000
Less: Preference dividend	200000
Profit available to equity shareholders	1000000
No of equity shares	100000
Earnings per share	10

21) (e) is the answer as the entries will not comee in “Share Premium – Preference”. It will reflect only in “Share Premium – Conversion Equity” and “Share Premium – Ordinary Equity”