Chapter_16_problems

# Chapter_16_problems - SOLUTIONS TO PROBLEMS PROBLEM 16-1(a...

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SOLUTIONS TO PROBLEMS PROBLEM 16-1 (a) 1. Memorandum entry made to indicate the number of rights issued. 2. Cash .................................................................... 208,000 Discount on Bonds Payable* ........................... 8,000 Bonds Payable ........................................... 200,000 Paid-in Capital—Stock Warrants** .......... 16,000 * *Allocated to Bonds : \$96 X \$208,000 = \$192,000; \$96 + \$8 Discount = \$200,000 – \$192,000 = \$8,000 **Allocated to Warrants : \$8 X \$208,000 = \$16,000 \$96 + \$8 3. Cash* .................................................................. 304,000 Common Stock (9,500 X \$10) ................... 95,000 Paid-in Capital in Excess of Par .............. 209,000 *[(100,000 – 5,000) rights exercised] ÷ *[ (10 rights/share) X \$32 = \$304,000

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4. Paid-in Capital—Stock Warrants (\$16,000 X 80%) ............................................ 12,800 Cash* .................................................................. 48,000 Common Stock (1,600 X \$10) ................... 16,000 Paid-in Capital in Excess of Par .............. 44,800 *.80 X \$200,000/\$100 per bond = 1,600 * warrants exercised; 1,600 X \$30 = \$48,000
PROBLEM 16-1 (Continued) 5. Compensation Expense* .................................. 100,000 Paid-in Capital—Stock Options ............... 100,000 *\$10 X 10,000 options = \$100,000 6. For options exercised : Cash (9,000 X \$30) ............................................. 270,000 Paid-in Capital—Stock Options (90% X \$100,000) ........................................... 90,000 Common Stock (9,000 X \$10) ................... 90,000 Paid-in Capital in Excess of Par .............. 270,000 For options lapsed : Paid-in Capital—Stock Options ....................... 10,000 Compensation Expense* .......................... 10,000 *(Note to instructor : This entry provides an opportunity to indicate that a credit to Compensation Expense occurs when the employee fails to fulfill an obligation, such as remaining in the employ of the company. Conversely, if a stock option lapses because the stock price is lower than the exercise price, then a credit to Paid-in Capital—Expired Stock Options occurs.) (b) Stockholders’ Equity: Paid-in Capital: Common Stock, \$10 par value, authorized 1,000,000 shares, 320,100 shares issued and outstanding ........................... \$3,201,000 Paid-in Capital in Excess of Par* ............... 1,123,800 Paid-in Capital—Stock Warrants* .............. 3,200 \$4,328,000

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Retained Earnings ............................................... 750,000 Total Stockholders’ Equity ......................... \$5,078,000 *These two accounts often are combined into one category called Additional Paid-in Capital, for financial reporting purposes.
PROBLEM 16-1 (Continued) Calculations : Common Stock Paid-in Capital in Excess of Par At beginning of year ........................ 300,000 shares \$ 600,000 From stock rights (entry #3) ........... 9,500 shares 209,000 From stock warrants (entry #4) ...... 1,600 shares 44,800 From stock options (entry #6) ........ 9,000 shares 270,000 Total .......................................... 320,100 shares \$1,123,800

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PROBLEM 16-2 (a) Entries at August 1, 2011 Bonds Payable ........................................................... 250,000 Discount on Bonds Payable (Schedule 1) ....... 4,815* Common Stock (8 X 250 X \$100) ...................... 200,000 Paid-in Capital in Excess of Par ....................... 45,185** (To record the issuance of 2,000 shares of common stock in exchange for \$250,000 of bonds and the write-off of the discount on bonds payable) *(\$54,000 X 1/10) X (107/120) **(\$250,000 – \$4,815) – \$200,000 Interest Payable ......................................................... 2,500 Cash (\$250,000 X 12% X 1/12) ........................... 2,500 (To record payment in cash of interest accrued on bonds converted as of August 1, 2011) (b) Entries at August 31, 2011 Bond Interest Expense ............................................. 405* Discount on Bonds Payable (Schedule 1) ...... 405 (To record amortization of one month’s discount on \$2,250,000 of bonds) *(\$54,000 X 90%) X (1/120) Bond Interest Expense ............................................. 22,500 Interest Payable (\$2,250,000 X 12% X 1/12) .... 22,500 (To record accrual of interest for August on \$2,250,000 of bonds at 12%)
(c) Entries at December 31, 2011 (Same as August 31, 2011, and the following closing entry) Income Summary ....................................................... 292,675 Bond Interest Expense (schedule 2) ............... 292,675 (To close expense account)

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PROBLEM 16-2 (Continued) Schedule 1 Monthly Amortization Schedule Unamortized discount on bonds payable : Amount to be amortized over 120 months ......................................
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