Solve question according to GAAP rules
Q1 Zotar Company issues $5,600,000 of 12%, 40-year convertible bonds at 103. At the time of conversion, the Premium on Bonds Payable account has a balance of $150,000. All convertible bonds are converted into common stocks, and each $1,000 bond is convertible into 10 shares of common stock with a par value of $1 per share. 1) Prepare the journal entry to record the issuance of convertible bonds. 2) Prepare the journal entry to record the bond conversion. Q2 MagTech Inc. requires funding to build a new factory and has decided to raise the additional capital by issuing $850,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of 5 warrants for each $1,000 bond sold (in total 4,250 shares of warrants were issued with the bonds). The value of the bonds without the warrants is considered to be $775,000, and the value of the warrants in the market is $75,000. The bonds sold in the market at issuance for $825,000. 1) What entry should be made at the time of the issuance of the bonds and warrants? 2) The exercise price of the warrants is $10. The current market price of the common stock is $20. The par value of the common stock is $5. Assuming investors exercise all of the warrants (one warrant per one share of stock). Prepare the journal entry to record the exercise of warrants. Q3 Olde Corporation provides an executive stock option plan. Under the plan, the company granted options on January 1, 2016, that permit executives to acquire 2 million of the company's $1 par value common shares within the next five years, but not before December 31, 2017 (the vesting date). The exercise price is the market price of the shares on the date of the grant, $14 per share. The fair value of the options, estimated by an appropriate option pricing model, is $2 per option. No forfeitures are anticipated. Ignore taxes. 1) Prepare the journal entry (if any) to record compensation expense on December 31, 2016 2) 1 million shares of options are exercised on May 1, 2018. Please prepare the journal entry to record this transaction. Q4 Yoder, Incorporated, has 4,200,000 shares of common stock outstanding on December 31, 2017. An additional 800,000 shares of common stock were issued on April 1, 2018, and 400,000 more on July 1, 2018. On October 1, 2018, Yoder issued 20,000, $1,000 face value, 8% convertible bonds. Each bond is convertible into 60 shares of common stock. No bonds were converted into common stock in 2018. In addition, it had 100,000 shares of 9%, $100 par nonconvertible, noncumulative preferred stock outstanding for the entire year. The net income is $5,900,000 for the year 2018. The tax rate is 40%. Calculate the basic EPS and diluted EPS. Q5 The balance sheet data of Wheels ‘n Tires, Inc. at the end of 2014 and 2013 follow. Use the following information to prepare a statement of cash flow for 2014. 2014 2013 Cash $ 7,500 $ 10,000 Accounts receivable 82,000 87,500 Merchandise inventory 86,000 81,000 Prepaid expenses 9,000 12,000 Equipment 170,000 145,000 Accumulated depreciation—equipment (45,000) (36,000) Land 30,000 50,000 Total assets $339,500 $349,500 Accounts payable $ 44,500 $ 58,000 Accrued expenses 11,000 9,000 Long-term Bonds 20,000 50,000 Common stock, $1 par 181,000 160,000 Retained earnings 83,000 72,500 Total liabilities and shareholders‘equity $339,500 $349,500 Additional information: Equipment was purchased for $21,000 in exchange for common stock, par $21,000, during the year; all other equipment purchased was for cash. The firm did not sell any PPE in 2014. Land was sold for $31,500. Cash dividends of $7,000 were declared and paid during the year. 1) Calculate the net income in 2014. 2) Calculate the depreciation expense in 2014. 3) Calculate the gain/loss on the sale of land, if any. 4) Calculate the value of the equipment that was purchased by cash. 5) Prepare OCF using the indirect method. 6) Prepare ICF using the direct method. 7) Prepare FCF using the direct method.