1. The stockholders’ equity section at the beginning of the year have the following balances.
$3,000,000 Common stock, $10 par, authorized 1,000,000 shares, 300,000 shares issued and outstanding
$ 600,000 Paid-in capital in excess of par – common stock
$ 570,000 Retained earnings
Using the attached T-account template:
· Record the balances indicated above. Label the balances “Bal”.
· Prepare entries, if necessary, to recognize the following transactions, which occurred during the current year:
a. The company issued to the stockholders 100,000 rights.Ten rightsare needed to buyone shareof stock at $32. The rights were void after 30 days. The average market price of the stock during the 30 days was $34 per share.
b. The company sold to the public a $200,000, 10% bond issue at 104. The company also issued, with each $100 bond, one detachable stock purchase warrant, which provided for the purchase of common stock at $30 per share. Shortly after issuance, similar bonds, without warrants, were selling at $96 and warrants were selling at $8.
c. During the year, 95,000 of the rights issued in (a) above were exercised within 30 days.
d. At the end of the year, 80% of the warrants in (b) above had been exercised, and the remaining were outstanding and in good standing.
e. During the current year, the company granted stock options for 10,000 shares of common stock to company management executives. The company, using a fair value option-pricing model, determined that each option is worth $10. The option price is $30. The options were designated to expire at year-end and were considered compensation expense for the year.
f. During the current year, 9,000 shares, related to the stock-option plan, were exercised. The expiration of 1,000 shares resulted because one of the executives failed to fulfill an obligation related to the employment contract.
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