Individual Homework #3, Equity, Dilutive Securities, and EPS
Solutions
1. Journal entries:
Problem 1
Wilshire Company reported net income of $1,400,000 for year 2007. On Jan. 1, 2007, 500,000 shares of
Wilshare's common stock, with a par value of $1 per share, originally issued at $10 per share, were
outstanding. As of Jan. 1, 2007, Wilshire had options outstanding that would permit key executives to
acquire 30,000 of the company's common stock in the next eight years. All the options were already vested,
that is, they were exercisable immediately. The exercise price was equal to the market price on Jan. 1,
2007, $50 per share.
In 2007, Wilshire had the following transactions:
1). On Jan. 1, 2007, Wilshire sold at par $5,000,000 4% cumulative preferred stock, convertible into
100,000 shares of Wilshire's common stock.
2). On Mar. 1, 2007, Wilshire reacquired and retired 60,000 shares of its common stock at $45 per share.
3). On Nov. 1, 2007, Wilshire issued 120,000 shares of new common stock with a par value of $1 per share,
at $60 per share.
The average market price of Wilshire's stock in 2007 was $60. Wilshire's fiscal year ends on December 31.
Required:
1. Show journal entries for the above transactions. (6 points)
2. Compute the basic earnings per share for 2007. (Round to the nearest penny.) Show your work. (6 points)
3. Compute the diluted earnings per share for 2007. (Round to the nearest penny.) Show your work. (8
points)
