Reference no: EM132479673

The partial balance sheet of NG Co. reflected the following at 2025 year end:

Bonds Payable-$500.000 Par Value, 7%, Maturing

December 31. 2034                                                                              $450,000

Preferred Shares-$2. No Par Value, Cumulative, Convertible at 1

Preferred Sh. For 2 Common Sh. - 14,000 Sh. Outstanding                           210,000

Contributed Capital-Common Sh. Options Outstanding                                 $70,000

Common Stock Conversion Rights-7% Bonds                                                30,000

Common Sh. -No Par Value, 320,000 Sh. Outstanding                                   800,000

Additional Information:

1) There are no dividends in arrears at the beginning of the year. No dividends have been declared for 2025.

2) Net income for 2025 is $1,263,000, includes $38,000 interest expense for the 7% bonds.

3) Income tax rate is 40%.

4) Bonds, options, and preferred shares were outstanding for the entire year.

5) The stock options are noncompensatory and are convertible into a total of 80,000 common shares at an exercise price of $32.30. The average share price during the year was $34.

6) No other common share transactions occurred during the year.

7) Each $1,000 bond is convertible into 30 shares of common stock.

Required:

Question 1) Calculate basic and diluted EPS for the year ended December 31, 2025.

Question 2) Assume that one-half of the stock options were exercised on January 1, 2025. Prepare the journal entry to record the exercise of the stock options.