Chapter_16_problems - SOLUTIONS TO PROBLEMS PROBLEM 16-1...

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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
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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.
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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
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Chapter_16_problems - SOLUTIONS TO PROBLEMS PROBLEM 16-1...

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