Computation of Basic and Diluted EPS) The information below pertains to Barkley Company for 2018.

Net income for the year
7% convertible bonds issued at par ($1,000 per bond); each bond is convertible into

30 shares of common stock
6% convertible, cumulative preferred stock, $100 par value; each share is convertible

into 3 shares of common stock Common stock, $10 par value
Tax rate for 2018
Average market price of common stock

$1,200,000

2,000,000

4,000,000 6,000,000 40% $25 per share

There were no changes during 2018 in the number of common shares, preferred shares, or convertible bonds outstanding. There is no treasury stock. The company also has common stock options (granted in a prior year) to purchase 75,000 shares of common stock at $20 per share.

Instructions

(a) Compute basic earnings per share for 2018.

(b) Compute diluted earnings per share for 2018.

*PLEASE SHOW ALL YOUR WORK*

Fores Construction Company reported a pretax operating loss of $210 million for financial reporting purposes in 2018. Contributing to the loss were (a) a penalty of $10 million assessed by the Environmental Protection Agency for violation of a federal law and paid in 2018 and (b) an estimated loss of $10 million from accruing a loss contingency. The loss will be tax deductible when paid in 2019. The enacted tax rate is 40%. There were no temporary differences at the beginning of the year and none originating in 2018 other than those described above. Taxable income in Fores’s two previous years of operation was as follows: 2016 $ 115 million 2017 40 million Required: 1. Prepare the journal entry to recognize the income tax benefit of the net operating loss in 2018. Fores elects the carryback option. 2. What is the net operating loss reported in 2018 income statement? 3. Prepare the journal entry to record income taxes in 2019 assuming pretax accounting income is $75 million. No additional temporary differences originate in 2019.

Cansela Corporation uses a periodic inventory system and the LIFO method to value its inventory. The company began 2018 with inventory of 5,600 units of its only product. The beginning inventory balance of $75,600 consisted of the following layers:
  

  
During the three years 2018–2020, the cost of inventory remained constant at $17 per unit. Unit purchases and sales during these years were as follows:
  

  
Required:
1. Calculate cost of goods sold for 2018, 2019, and 2020.
2. Disregarding income tax, determine the LIFO liquidation profit or loss, if any, for each of the three years.
3. Determine the effects of LIFO liquidation on cost of goods sold and net income for 2018, 2019, and 2020. Cansela’s effective income tax rate is 35%.

Problem 5. On November 1, 2017, US Pelican Company entered into a 90 day forward contract of £200,000 pounds to hedge a commitment to purchase special equipment on February 1, 2018 from a British firm Raven Inc. Assume Pelican uses a 12% interest rate.

The relevant exchange rates are of dollars per pound:

Instructions

1. What journal entry did Pelican record on November 1, 2017?

2. What journal entry did Pelican record on December 31, 2017?

3. What journal entry did Pelican record on February 1, 2018 if the purchase was made?

4. If this is a “forecasted transaction”, what journal entry did Pelican record on November 1, 2017, on December 31, 2017, and on February 1, 2018 if the purchase was made?

a. A patent was purchased from the Lou Company for $1,600,000 on January 1, 2016. Janes estimated the remaining useful life of the patent to be 10 years. The patent was carried on Lou’s accounting records at a net book value of $530,000 when Lou sold it to Janes.

b. During 2018, a franchise was purchased from the Rink Company for $680,000. The contractual life of the franchise is 10 years and Janes records a full year of amortization in the year of purchase.

c. Janes incurred research and development costs in 2018 as follows:

d. Effective January 1, 2018, based on new events that have occurred, Janes estimates that the remaining life of the patent purchased from Lou is only five more years.

Required:
1. Prepare the entries necessary for years 2016 through 2018 to reflect the above information.
2. Prepare a schedule showing the intangible asset section of Janes’s December 31, 2018, balance sheet.

The following data is given:

December 31, 2018 2017

Cash $66,500 $49,500

Accounts receivable (net) 90,000 59,000

Inventories 90,000 105,000

Plant assets (net) 382,500 324,000

Accounts payable 55,500 39,500

Salaries and wages payable 12,000 5,500

Bonds payable 68,500 72,000 8%

Preferred stock, $40 par 100,000 100,000

Common stock, $10 par 120,000 90,000

Paid-in capital in excess of par 75,000 70,000

Retained earnings 198,000 160,500

Net credit sales 995,000

Cost of goods sold 740,000

Net income 82,000

Compute the following ratios:

On June 15, 2016, Sanderson Construction entered into a long-term construction contract to build a baseball stadium in Washington, D.C., for $310 million. The expected completion date is April 1, 2018, just in time for the 2018 baseball season. Costs incurred and estimated costs to complete at year-end for the life of the contract are as follows ($ in millions): 2016 2017 2018 Costs incurred during the year $ 70 $ 60 $ 30 Estimated costs to complete as of December 31 130 30 — Compute the revenue and gross profit will Sanderson report in its 2016, 2017, and 2018 income statements related to this contract assuming Sanderson recognizes revenue over time according to percentage of completion. Compute the amount of revenue and gross profit or loss to be recognized in 2016, 2017, and 2018 using the completed contract method. Suppose the estimated costs to complete at the end of 2017 are $120 million instead of $30 million. Compute the amount of revenue and gross profit or loss to be recognized in 2017 using the percentage of completion method.

The Prince-Robbins partnership has the following capital account balances on January 1, 2018:

Prince is allocated 70 percent of all profits and losses with the remaining 30 percent assigned to Robbins after interest of 7 percent is given to each partner based on beginning capital balances.

On January 2, 2018, Jeffrey invests $43,000 cash for a 20 percent interest in the partnership. This transaction is recorded by the goodwill method. After this transaction, 7 percent interest is still to go to each partner. Profits and losses will then be split as follows: Prince (50 percent), Robbins (30 percent), and Jeffrey (20 percent). In 2018, the partnership reports a net income of $12,000.

Prepare the journal entry to record Jeffrey’s entrance into the partnership on January 2, 2018.

(Record the entry for goodwill allocation, during the admission of a new partner.)

(record the cash received from new partner)

Determine the allocation of income at the end of 2018.

Prince?

Robbins?

Jeffrey?

Mills Corporation acquired as a long-term investment $200 million of 7% bonds, dated July 1, on July 1, 2018. Company management has the positive intent and ability to hold the bonds until maturity. The market interest rate (yield) was 5% for bonds of similar risk and maturity. Mills paid $240 million for the bonds. The company will receive interest semiannually on June 30 and December 31. As a result of changing market conditions, the fair value of the bonds at December 31, 2018, was $210 million. Required: 1. & 2. Prepare the journal entry to record Mills’ investment in the bonds on July 1, 2018 and interest on December 31, 2018, at the effective (market) rate. 3. At what amount will Mills report its investment in the December 31, 2018, balance sheet? 4. Suppose Moody’s bond rating agency upgraded the risk rating of the bonds, and Mills decided to sell the investment on January 2, 2019, for $250 million. Prepare the journal entry to record the sale.