(Entries for Various Dilutive Securities) The stockholders\' equity section of M
ID: 2443092 • Letter: #
Question
(Entries for Various Dilutive Securities)The stockholders' equity section of Martino Inc. at the beginning of the current year appears below.
Common stock, $10 par value, authorized 1,000,000
shares, 300,000 shares issued and outstanding $3,000,000
Paid-in capital in excess of par 600,000
Retained earnings 570,000
During the current year the following transactions occurred.
The company issued to the stockholders 100,000 rights. Ten rights are needed to buy one share of stock at $32. The rights were void after 30 days. The market price of the stock at this time was $34 per share.
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 the warrants at $8.
All but 5,000 of the rights issued in (1) were exercised in 30 days.
At the end of the year, 80% of the warrants in (2) had been exercised, and the remaining were outstanding and in good standing.
During the current year, the company granted stock options for 10,000 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 $30. The options were to expire at year-end and were considered compensation for the current year.
All but 1,000 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. (If a memorandum entry is required instead of a journal entry, enter Memo entry as the Description and 0 as the amount. List multiple debit/credit entries from largest to smallest amount, e.g. 10, 5, 2. Round answers to 0 decimal places, e.g. 5,210.)
Description/Account Debit Credit
1. Bonds payablePaid-in capital - Stock optionsCashDiscount on bonds payableMemo entryPaid-in capital - Stock warrantsCommon stockPaid-in capital in excess of parCompensation expense
Paid-in capital in excess of parCashDiscount on bonds payableCompensation expensePaid-in capital - Stock optionsMemo entryBonds payablePaid-in capital - Stock warrantsCommon stock
2. Paid-in capital - Stock optionsPaid-in capital - Stock warrantsCommon stockPaid-in capital in excess of parDiscount on bonds payableMemo entryCompensation expenseBonds payableCash
Compensation expenseDiscount on bonds payableCommon stockPaid-in capital - Stock warrantsPaid-in capital in excess of parPaid-in capital - Stock optionsMemo entryCashBonds payable
Bonds payableCashMemo entryDiscount on bonds payablePaid-in capital - Stock warrantsPaid-in capital in excess of parCompensation expensePaid-in capital - Stock optionsCommon stock
Memo entryCashCommon stockDiscount on bonds payablePaid-in capital in excess of parBonds payableCompensation expensePaid-in capital - Stock optionsPaid-in capital - Stock warrants
3. CashBonds payableDiscount on bonds payablePaid-in capital - Stock optionsPaid-in capital - Stock warrantsCommon stockMemo entryPaid-in capital in excess of parCompensation expense
Paid-in capital - Stock optionsMemo entryPaid-in capital in excess of parCashDiscount on bonds payableBonds payablePaid-in capital - Stock warrantsCompensation expenseCommon stock
Common stockPaid-in capital - Stock warrantsCashDiscount on bonds payableBonds payablePaid-in capital in excess of parCompensation expensePaid-in capital - Stock optionsMemo entry
4. Paid-in capital in excess of parCompensation expensePaid-in capital - Stock warrantsBonds payablePaid-in capital - Stock optionsMemo entryCashDiscount on bonds payableCommon stock
Paid-in capital - Stock warrantsDiscount on bonds payableBonds payableMemo entryCommon stockCashCompensation expensePaid-in capital in excess of parPaid-in capital - Stock options
Common stockCompensation expenseCashPaid-in capital - Stock optionsDiscount on bonds payableMemo entryBonds payablePaid-in capital in excess of par
Bonds payableCashCommon stockPaid-in capital - Stock warrantsDiscount on bonds payablePaid-in capital - Stock optionsCompensation expensePaid-in capital in excess of parMemo entry
5. Paid-in capital - Stock warrantsCompensation expenseCashMemo entryDiscount on bonds payableBonds payableCommon stockPaid-in capital in excess of parPaid-in capital - Stock options
Paid-in capital - Stock warrantsCommon stockCompensation expenseDiscount on bonds payableMemo entryBonds payablePaid-in capital in excess of parPaid-in capital - Stock optionsCash
6. CashPaid-in capital - Stock warrantsPaid-in capital - Stock optionsCommon stockMemo entryDiscount on bonds payableBonds payablePaid-in capital in excess of parCompensation expense
Discount on bonds payableCommon stockPaid-in capital in excess of parCompensation expenseCashMemo entryPaid-in capital - Stock warrantsPaid-in capital - Stock optionsBonds payable
Bonds payableMemo entryPaid-in capital - Stock warrantsDiscount on bonds payablePaid-in capital in excess of parCommon stockCashPaid-in capital - Stock optionsCompensation expense
Discount on bonds payableBonds payablePaid-in capital - Stock warrantsCashCompensation expensePaid-in capital - Stock optionsMemo entryPaid-in capital in excess of parCommon stock
(For options exercised.)
Compensation expenseCommon stockPaid-in capital in excess of parDiscount on bonds payablePaid-in capital - Stock warrantsPaid-in capital - Stock optionsMemo entryBonds payableCash
Common stockPaid-in capital - Stock optionsCashMemo entryDiscount on bonds payableCompensation expensePaid-in capital in excess of parBonds payablePaid-in capital - Stock warrants
(For options lapsed.)
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 $750,000.
Stockholders' Equity:
Paid-in Capital:
Common stock, $10 par value, authorized
1,000,000 shares, 320,100 shares
issued and outstanding $
Paid-in capital in excess of par
Paid-in capital—Stock warrants
$
Retained earnings
Total stockholders' equity
Explanation / Answer
a) 1. Memo entry to indicate 100,000 rights issued. 2. Cash(200,000*1.04) 208,000 debit Discount on Bonds Pyable(200,000*(1-.96)) 8000 debit Paid in Cap._Warrants(200,000/100)*$8 16000 credit Bonds Payable 200,000 3. Cash(9500*$32) 304,000 debit Common Stock(9,500*$10) 95,000 credit Pai in cap exc of par -common 209,000 credit 4. Paid in Cap-Warrants($16,000*.80) 12,800 debit Cash(2000*.80*$30) 48,000 debit Common stock(1,600*$10) 16,000 credit Paid in cap exc of par 44,800 credit 5. Beg of the Year. Memo entry granting the stock options End of the Year Compensation Expance (10,000*$10) 100,000debit Paid in Cap-Stock options 100,000 credit 6.Paid in Cap -stock opt 90,000debit Cash(9000*$30) 270 debit Common Stock(9000*$10) 90,000 credit Paid in Cap exc of par-com 270,000 credit Paid in Cap -stock opt 10,000 debit Compensation Expense 10,000 credit b) Stockholders' Equity Paid in Capital Common stock $10 par authr. 1,000,000sh issuued and outstandin 320,100sh 3,201,000 Paid Cap exc of par-com 1,123,800 Paid Cap - stock warrants(16,000-12800) 3,200 4,328,000 Retain Earnings 750,000 Total Stockholders' Equity $ 5,078,000 Common stock (300,000sh+9500sh(ent3) +1,600sh(ent4) + 9,000sh(ent6))=320,100sh Paid in Cap Exc of par=600,000+209,000+44,800+270,000=$1,123,8000
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