[jeff]

Welcome to the Q1 2017 CPA Exam Study Group for FAR. 🙂

Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[aatoural]

I got another one. Tomorrow I am moving on from this. Terrible!

On December 31, Moss Co. issued $1,000,000 of 11% bonds at 109. Each $1,000 bond was issued with 50 detachable stock warrants, each of which entitled the bondholder to purchase one share of $5 par common stock for $25. Immediately after issuance, the market value of each warrant was $4. On December 31, what amount should Moss record as discount or premium on issuance of bonds?
a.$200,000 discount.
b.$90,000 premium.
c.$40,000 premium.
d.$110,000 discount.

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[GiniC]

@mckan514w – I got the second part correct even if I did it wrong – what's the correct answer for the first part?

[mckan514w]

@mtaylo- according to my calculations you do pro-rate the T-stock:
100 X2= 200 outstanding all year
20 sold in april X 2 = 40 X.75 (outstanding 9 out of 12 months)= 30
Total Weighted Outstanding= 230

NI=410/230=1.78

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[mckan514w]

@aa… the Bonds have a FV of 1,000,000
The Warrants have a FV of 200,000 (1M bonds / 1,000 face= 1,000 bonds X 50 Warrants X 4mrkt)

This give you a total value of bonds of 1,200,000
You issued the bonds for 1,000,000 X 1.09= 1,090,000
This is a discount because you got less than they are worth so 1.2 – 1.09 is a discount of 110

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[mckan514w]

@GiniC– I think I messed up when I was typing and transposed the answers– because I was looking at notes, screen calculator and typing– without re-doing it I think the answer to 1 With the NI of 350 is a DEPS of 2.10 and then the NI of 245 is the 2.04

I would calculate again but good lord my brain is about to explode

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[GiniC]

@mckan514w – 2.10 isn't one of the choices for the first one. Any chance you could look at the solution again? Sorry to slow you down, but this approach is complete news to me and I'm trying to understand it.

[norseman88]

On July 1, X corp sold goods in exchange for a 200,000, 8-month noninterest-bearing note receivable. At the time of the sale, the note's market rate of interest was 12%. What amount did X receive when it discounted the note at 10% on September 1?

188,000
194,000
193,800
190,000 (correct)

So the discount of 10% is on an annual basis? The 10% is not effective (6/8)?

[mtaylo24]

@McKan, Damn you're right. I don't know what I was thinking 🙂

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[mckan514w]

Ugh sorry Gina! I am just spouting things out with out re-reading no probs on working see below 🙂

So yeah for the first one you have NI of 350 so this give you a BES of 3.20
350 less Pref Div of 30= 320/100 common outstanding

You then calculate your Pref Dilutive effect so 30 preferred dividend ÷ 20 converted shares for 1.50

Then you do the bonds which would be numerator effect of the conversion of the bonds is $63,000 $1,000 × 9% × .70 of $2.10

Both appear to be dilutive so you start with the most dilutive which is your pref.
So you have NI of 350 / 100+20converted shares= 2.91

This is higher than the bonds so the bonds must be dilutive as well so then you add that in for a total DEPS of 350+63 (calculated above- after tax savings of interest pmt) / 100 + 20+ 30 for a DEPS of 2.75

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[GiniC]

Thanks, that seems to make sense

[aatoural]

Thanks @mckan!

BEC - PASSED
AUD - 8/29/16
FAR - TBS
REG - TBS

[mckan514w]

@norse- yes the 10% is annualized and is effective for 6 months the remaining time left on the note-
so 200-(200 X (10% X 6/12))= 190

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[mtaylo24]

Geez the weighted average share questions with stock options are killing me for some reason

Anyone want to take a stab?

Weaver Company had 100,000 shares of common stock issued and outstanding at January 1. On July 1, Weaver issued a 10% stock dividend. Unexercised call options to purchase 20,000 shares of Weaver’s common stock (adjusted for the stock dividend) at $20 per share were outstanding at the beginning and end of the year. The average market price of Weaver’s common stock (which was not affected by the stock dividend) was $25 per share during the year. Net income for the year ended December 31 was $550,000. What should be Weaver’s diluted earnings per share (DEPS) for the year?

A. $4.82
B. $5.00
C. $5.05
D. $5.24

AUD - 1st - 60 (12/12), 61 (2/13), 61 (8/13), 78! (11/15)
REG - 55 (2/16) 69 (5/16) Retake(8/16)
BEC - 71(5/16) Retake (9/16)
FAR - (8/16)

[mckan514w]

KILLED me two days ago Mtaylo- KILLED ME– and I don't know why- its like when one part starts working another part goes to hell– WHY oh WHY can't it all come together at once…

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[mckan514w]

@mtaylo A. 4.82???

Exercise 20 options at 20 divided by market price of 25 means the company could buy back 16 shares. 20 options less 16 gives you 4 shares that would be converted

NI of 550 / 4 converted shares + 110 common (100 X1.10 share dividend)= 4.82???

and they ask me why I drink...

FAR- 61-next time I'll ask for lube instead of a calculator
REG-75- Never been so happy to see such a low grade
BEC- 8/11
AUD- 9/2

[Author]

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