Leek Co’s profit for the year ended 31 December 2018 was €1,500,000. On 1 January 2018 Leek Co had 500,000 ordinary shares outstanding. On 1 July 2018 there was a full market price issue of 200,000 additional shares. In addition the company has one potentially convertible security: €800,000 of 5% convertible bonds, convertible into a total of 200,000 shares. Assuming a tax rate of 30%, calculate the company’s basic and diluted EPS.

For calculating the basic EPS the weighted average number of shares for the year ended 31 December 2018 is                      ["900,000", "700,000", "600,000"]      

The Basic EPS is                                  ["€2.50", "€1.67", "€2.14"]      

The restated profit for calculated the Diluted EPS is    ["1,512,000", "1,528,000", "1,540,000"]      

The number of shares for calculating the Diluted EPS is ["800,000", "900,000", "700,000"]      

The diluted EPS is ["€1.91", "€1.71", "€1.88"]      

Boeing had $1,000,000 net income in 2018. On January 1, 2018, there were 200,000 shares of common stock outstanding. There are 30,000 options to buy common stock at $40 a share outstanding. The market price of the common stock averaged $50 during 2018. The tax rate is 30%.

During 2018, there were 40,000 shares of preferred stock outstanding. The preferred is $100 par, pays $3.50 a year dividend.

Boeing issued $2,000,000 of 8% convertible bonds at face value during 2017. Each $1,000 bond is convertible into 30 shares of common stock.

Required:

Prepare the Basic and Diluted Earnings per Share for Boeing for FY2018.

What does “diluted” mean in “Diluted Earnings per Share”?

What does “anti-dilutive” mean as it relates to Earnings per Share? What causes antidilution?

On January 1, 2018, Entity A issued 8% bonds dated January 1, 2018, with a face amount of $10 million. The bonds mature in 2022 (5 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31.

A. What was the issue price of the bonds?

B. Prepare the journal entry to record the bond issuance.

C. Prepare the journal entry to record interest on June 30, 2018, using the straight-line method.

D. Prepare the journal entry to record interest on December 31, 2018, assuming that Entity A had used the effective interest method from the inception. Prepare an amortization schedule.

E. Prepare a partial balance sheet showing the bonds at December 31, assuming that Entity A had used the effective interest method from the inception.

F. Why might a company utilize the straight-line method to amortize premium or discount? When is it permissible to do so?  

The Murdock Corporation reported the following balance sheet data for 2018 and 2017:

Additional information for 2018:

(1.) Sold available-for-sale debt securities costing $69,500 for $74,000.
(2.) Equipment costing $20,000 with a book value of $5,000 was sold for $6,000. (3.) Issued 6% bonds payable at face value, $200,000.
(4.) Purchased new equipment for $145,000 cash.
(5.) Paid cash dividends of $20,000.
(6.) Net income was $50,000.

Required:

Prepare a cash flow worksheet for 2018 in good form using the indirect method for cash flows from operating activities.

On January 1, 2018, Entity A issued 8% bonds dated January 1, 2018, with a face amount of $10 million. The bonds mature in 2022 (5 years). For bonds of similar risk and maturity, the market yield is 10%. Interest is paid semiannually on June 30 and December 31. A. Prepare a partial balance sheet showing the bonds at December 31, assuming that Entity A had used the effective interest method from the inception. B. Why might a company utilize the straight-line method to amortize premium or discount? When is it permissible to do so?

XYZ Company recorded the following information related to their inventory
accounts for 2018:

                 January 1, 2018        December 31, 2018
Direct materials     10,000                   17,000
Work in process      11,000                      ?
Finished goods       16,000                    9,000

Additional information is as follows:

Direct materials purchased .......... $19,000
Direct labor ........................  15,000
Actual manufacturing overhead .......  16,000
Applied manufacturing overhead ......  14,000
Net income ..........................  20,000
S&A expenses ........................  30,000
Sales revenue .......................  90,000

Calculate the work in process inventory balance on December 31.

The Jamesway Corporation had the following situations on December 2018. On December 20, 2018, Jamesway received a $6,000 payment from a customer for services to be rendered early in 2019. Service revenue was credited. On December 1, 2018, the company paid a local radio station $6,000 for 40 radio ads that were to be aired, 20 per month, throughout December and January. Prepaid advertising was debited. Employee salaries for the month of December totaling $36,000 will be paid on January 7, 2019. On August 31, 2018, Jamesway borrowed $75,000 from a local bank. A note was signed with principal and 6% interest to be paid on August 31, 2019. If none of the adjusting journal entries were recorded, would assets, liabilities, and shareholders’ equity on the 12/31/18 balance sheet be higher or lower and by how much?

If none of the adjusting journal entries were recorded, would assets, liabilities, and shareholders’ equity on the 12/31/18 balance sheet be higher or lower and by how much?

Balance Sheet

As at Dec 31 2017 and 2018

Carl’s Jr Restaurants

2017               2018

Current Assets:

Cash $210,000,000        $215,000,000

Accounts Receivables                     355,000,000         310,000,000

Inventory                                       507,000,000       328,000,000

Total Current Assets                      $1,072,000,000       $853,000,000

Long-Term Assets:

Net Equipment, Furniture, Fixtures       $6,085,000,000     $6,527,000,000

Total Assets                                      $7,157,000,000     $7,380,000,000

Current Liabilities:

Accounts Payable                           $207,000,000        $298,000,000

Notes Payable                              $1,715,000,000     $1,427,000,000

Total Current Liabilities                       $1,922,000,000      $1,725,000,000

Long-term Liabilities                           $1,987,000,000      $2,308,000,000

Owners’ Equity:

Common stock plus Capital Surplus   $1,000,000,000      $1,000,000,000

Retained Earnings                                 2,248,000,000        2,347,000,000

Total Owners’ Equity                           3,248,000,000    3,347,000,000

Total Liabilities and Owners’ Equity $7,157,000,000       $7,380,000,000

Income Statement 2018

Carl’s Jr Restaurants

Net Revenues                                         $4,053,000,000

Cost of food and beverage                       2,780,000,000

Gross Profit 1,273,000,000

Amortization 100,000,000

Depreciation                                            450,000,000

EBIT                                                      723,000,000

Interest expense                                       502,000,000

Taxes                                                      75,000,000

Net Income                                               146,000,000

a) Prepare a comparative balance sheet statement for the two years.  

b) Prepare a common-size income statement.   

c) Explain whether liquidity (current ratio and quick ratio) and solvency (debt/equity ratio and debt ratio), have improved for the company.

Growth Rate Calculations. U.S. GDP in 2018 was $20.9 trillion, and U.S. GDP/person in 2018 was about $62,500, while China’s GDP in 2019 is projected to be $14.2 trillion (converted to US$ at market exchange rates), and China’s GDP/person in 2019 is projected to be $19,520 (converted to US$ at PPP-adjusted exchange rates).

a) Suppose that U.S. real GDP continues to grow at its recent pace of 2.3%/yr. What will U.S. real GDP (in 2018$) be in 2028? (Recall that if a series y grows at a constant rate g, then yt = y0 egt, or equivalently, yt = ys eg(t-s).)

b) Suppose instead that U.S. real GDP grows at its longer-run historical rate of 3.25%/yr. What would U.S. real GDP (in 2018$) be in 2028 in that case?

c) Suppose that U.S. real GDP/person continues to grow at its recent pace of 1.6%/yr. What will U.S. real GDP/person (in 2018$) be in 2028?

d) Suppose instead that U.S. real GDP/person grows at its longer-run historical rate of 2.1%/yr. What would U.S. real GDP/person (in 2018$) be in 2028 in that case?

e) Suppose that China’s real GDP continues to grow at its historical average rate of 9.1%/yr. What will China’s real GDP (in 2019US$) be in 2029?

f) Suppose that China’s real GDP/person continues to grow at its historical average rate of 8.2%/yr. What will China’s real GDP/person (in PPP-adjusted 2019US$) be in 2029?

g) If the U.S. grows at the same rate as in part a, and China grows at the same rate as in part e, in how many years from now will China’s real GDP be equal to the U.S.’s real GDP? (Let’s ignore the difference between 2018US$ and 2019US$ and just assume they are the same.)

h) If the U.S grows at the same rate as in part c and China grows at the same rate as in part f, in what year will China’s standard of living be equal to the U.S.’s standard of living? (Again, ignore the difference between 2018US$ and 2019US$.)

International Roofing Systems (IRS) Company began operations several years ago. At the end of 2017, the only existing temporary differences were the difference described in (e) and (f) below (hint: this creates balances at the end of 2017 in the deferred tax balance sheet accounts). In addition, there are four other tax differences arising in 2018 and 2019. These differences are as follows:

1. Interest revenue earned on an investment in tax-exempt municipal bonds is $34,000 each year.

2. In 2018, pretax financial income includes payments of fines for polluting of $100,000.

3. IRS began franchising its business at the beginning of 2018 and collected $30,000 of franchise fees for services to be rendered in the initial year and over the next several years. Franchise fees are reported when collected for tax purposes. For financial reporting purposes, franchise fees are recognized as revenue when services related to the franchise agreement are provided; these amounts are $20,000 in 2018 and $4,000 in 2019.

4. At July 1, 2018, IRS purchased a subsidiary that resulted in an amount of $600,000 being assigned to goodwill. For tax purposes, the goodwill is amortized and deducted over a 15-year period on a straight-line basis. For financial reporting purposes, goodwill is not amortized, but is required to be tested for impairment; at the end of 2018, IRS determined that goodwill is not impaired, but at the end of 2019, IRS determined that the goodwill has an impairment loss of $45,000.

5. Several years ago, IRS purchased equipment at a cost of $200,000. For financial accounting purposes, straight-line depreciation over the estimated useful life of 10 years is used. For tax purposes, the MACRS system is used and the equipment falls in the 7-year recovery class. As of the end of 2017, the accounting basis for the carrying value was $120,000 and the tax basis was $62,480. For 2018 and 2019, the MACRS rates for depreciation are 8.93% and 8.92%, respectively.

6. IRS has a defined benefit pension plan for its employees. For financial reporting purposes, the accrual basis is used and for tax purposes, pension costs are deducted as funding contributions to the plan are paid. As of the end of 2017, pension expense for financial reporting has been $200,000 greater than funding contributions. Pension expense for financial reporting purposes is $42,000 in 2018 and $50,000 in 2019, and the amount deducted for tax purposes is $2,000 in 2018 and $5,000 in 2019.

Additional information:

• Pretax financial income $180,000 for 2018 and $210,000 for 2019.

• The enacted tax rate, effective in 2018, is 25%.

• As of the end of each year, management estimates that it is more likely than not that future deductible amounts will not be realized as follows: 2017: $10,000; 2018: $12,000; 2019: $15,000

REQUIRED:

1. Complete year-by-year schedules through 2019 for each temporary difference showing the book amount, tax amount, current year taxable (deductible) amount, and future taxable (deductible) amount; note that for (e) and (f), you will need to start your schedule with the future taxable (deductible) amount as of the end of 2017.

2. Prepare schedules to reconcile between pretax financial income and taxable income for 2018 and 2019. Classify the tax differences as permanent or temporary.

Prepare journal entries to record the current portion of income tax expense for 2018 and 2019