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ACC423 Week 2 E15-13 E15-20 E16-20

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Resource: Intermediate Accounting
Prepare written responses to the following assignments from the
· Ch. 15: Exercises E15-13 & E15-20
· Ch. 16: Exercise E16-20

E15-13 (Stock Split and Stock Dividend) The common stock of Alexander Hamilton Inc. is currently selling at $120 per share. The directors wish to reduce the share price and increase share volume prior to a new issue. The per share par value is $10; book value is $70 per share. Nine million shares are issued and outstanding.


Prepare the necessary journal entries assuming the following.

(a) The board votes a 2-for-1 stock split.

(b) The board votes a 100% stock dividend.

(c) Briefly discuss the accounting and securities market differences between these two methods of
increasing the number of shares outstanding.

E15-20 (Trading on the Equity Analysis) Presented below is information from the annual report of
Emporia Plastics, Inc.

Operating income $ 532,150
Bond interest expense 135,000
Income taxes 183,432
Net income $ 213,718
Bonds payable $1,000,000
Common stock 875,000
Retained earnings 375,000


(a) Compute the return on common stock equity and the rate of interest paid on bonds. (Assume balances
for debt and equity accounts approximate averages for the year.)

(b) Is Emporia Plastics Inc. trading on the equity successfully? Explain.

E16-20 (EPS with Convertible Bonds, Various Situations) In 2006 Chirac Enterprises issued, at par, 60 $1,000, 8% bonds, each convertible into 100 shares of common stock. Chirac had revenues of $17,500 and expenses other than interest and taxes of $8,400 for 2007. (Assume that the tax rate is 40%.)
Throughout 2007, 2,000 shares of common stock were outstanding; none of the bonds was converted or redeemed.


(a) Compute diluted earnings per share for 2007.

(b) Assume the same facts as those assumed for part (a), except that the 60 bonds were issued on
September 1, 2007 (rather than in 2006), and none have been converted or redeemed.

(c) Assume the same facts as assumed for part (a), except that 20 of the 60 bonds were actually converted
on July 1, 2007.

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