Common stock, $10 par value, authorized 1,198,000 shares, 379,000 shares issued

ID: 2490398 • Letter: C

Question

Common stock, $10 par value, authorized 1,198,000 shares, 379,000 shares issued and outstanding $3,790,000 Paid-in capital in excess of par—common stock 617,000 Retained earnings 605,000 During the current year, the following transactions occurred.

1. The company issued to the stockholders 191,000 rights. Ten rights are needed to buy one share of stock at $33. The rights were void after 30 days. The market price of the stock at this time was $35 per share.

2. The company sold to the public a $255,000, 10% bond issue at 105. The company also issued with each $100 bond one detachable stock purchase warrant, which provided for the purchase of common stock at $31 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $9.

3. All but 9,550 of the rights issued in (1) were exercised in 30 days.

4. At the end of the year, 80% of the warrants in (2) had been exercised, and the remaining were outstanding and in good standing.

5. During the current year, the company granted stock options for 10,200 shares of common stock to company executives. The company, using a fair value option-pricing model, determines that each option is worth $10. The option price is $31. The options were to expire at year-end and were considered compensation for the current year.

6. All but 1,020 shares related to the stock-option plan were exercised by year-end. The expiration resulted because one of the executives failed to fulfill an obligation related to the employment contract.

Prepare general journal entries for the current year to record the transactions listed above.

Prepare the stockholders’ equity section of the balance sheet at the end of the current year. Assume that retained earnings at the end of the current year is $772,000.

Explanation / Answer

Journal entries:

1) No entry required

2) DR Cash (255,000*1.05) $267,750

DR Discount on bonds payable $10,200

CR To bonds payable $255,000

To Paid in capital - Stock warrants $22,950

Allocated to bonds:

$96/105*267,750 = $244,800

Discount = $255,000 - $244,800 = $10,200

Allocated to warrants:

$9/105 * 267,750 = $22,950

3) DR Cash $598,785

CR To Common stock (18,145 *10) $181,450

CR To Paid in excess of par $417,335

(191,000 - 9,550 rights exercised) / 10 right share)*33= $598,785

4)DR Paid in capital - Stock warrants (25,500@80%) $20400

Cash $63,240

CR To Common Stock (2040 *10) $20,400

CR To paid in capital in excess of par $63,240

80% *255,000/100 per bond = 2040

Warrant exercised 2040 *31 = $63,240

5) DR Compensation expense $102,000

CR To paid in capital Stock option $102,000

(10,200*10)

6) DR Cash (9180*31) $284,580

DR Paid in capital - Stock options $91,800

CR To Common stock (9180 *10) $91,800

CR To Paid in capital in excess of par $284,500

For options lapsed:

Dr Paid in capital stock option 10,200

CR To compensation expense $10,200