No. Account Titles and Explanation Debit Credit 1. 2. 3. 4. 5. 6. SHOW LIST OF A
ID: 2436683 • Letter: N
Question
No.
Account Titles and Explanation
Debit
Credit
1.
2.
3.
4.
5.
6.
SHOW LIST OF ACCOUNTS
LINK TO TEXT
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Buffalo Inc.
Balance Sheet
Common stock, $10 par value, authorized 1,095,000 shares, 293,000 shares issued and outstanding $2,930,000 Paid-in capital in excess of par—common stock 604,000 Retained earnings 537,000
During the current year, the following transactions occurred.
1. The company issued to the stockholders 103,000 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 $213,000, 10% bond issue at 103. 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 $7. 3. All but 5,150 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 9,000 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 900 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.
Explanation / Answer
(a) 1. Memo Entry (memo entry made to indicate the number of rights issued).
2. Cash..................................................................... 219,390
Discount on Bonds Payable*......................... 8,520
Bonds Payable.......................................... 213,000
Paid-in Capital—Stock Warrants**......... 14,910
**Allocated to Bonds:
$96
X $219,390 = $204,480;
$96 + $7
Discount = $213,000 – $204,480 = $8,520
**Allocated to Warrants:
$7
X $219,390 = $14,910
$96 + $7
3. Cash*................................................................... 322,905
Common Stock (9,785 X $10)................. 97,850
Paid-in Capital in Excess of Par—
Common Stock.................................. 225,055
*[(103,000 – 5,150) rights exercised] ÷
*[(10 rights/share) X $33 = $322,905
4. Cash*................................................................... 52,824
Paid-in Capital—Stock Warrants
($14,910 X 80%)............................................ 11,928
Common Stock (1,704 X $10)................. 17,040
Paid-in Capital in Excess of Par—
Common Stock....................................... 47,712
*.80 X $213,000/$100 per bond = 1,704
*warrants exercised; 1,704 X $31 = $52,824
5. Compensation Expense*................................. 90,000
Paid-in Capital—Stock Options.............. 90,000
*$10 X 9,000 options = $90,000
6. For options exercised:
Cash (8,100 X $31)............................................ 251,100
Paid-in Capital—Stock Options
(90% X $90,000).............................................. 81,000
Common Stock (8,100 X $10)................. 81,000
Paid-in Capital in Excess of Par—
Common Stock....................................... 251,100
For options lapsed:
Paid-in Capital—Stock Options...................... 9,000
Compensation Expense.......................... 9,000
(b) Stockholders’ Equity:
Paid-in Capital:
Common Stock, $10 par value, authorized
1,095,000 shares, 312,589 shares
issued and outstanding............................. $3,125,890
Paid-in Capital in Excess of Par—
Common Stock*............................................. 1,127,867
Paid-in Capital—Stock Warrants*................. 2,982 $4,256,739
Retained Earnings.................................................................... 790,000
Total Stockholders’ Equity............................................. $5,046,739
*These two accounts often are combined into one category called Additional Paid-in Capital, for financial reporting purposes.
Calculations:
Common Stock
Paid-in Capital
in Excess of Par
At beginning of year.......................
293,000 shares
$ 604,000
From stock rights (entry #3).........
9,785 shares
225,055
From stock warrants (entry #4)....
1,704 shares
47,712
From stock options (entry #6)......
8,100 shares
251,100
Total...........................................
312,589 shares
$1,127,867
$96
X $219,390 = $204,480;
$96 + $7
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