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SteveS
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on that same accounting problems i have E15-3 (Stock Issued

Customer Question

on that same accounting problems i have E15-3(Stock Issued for Land) Twenty-five thousand shares reacquired by Elixir Corporation for $53 per share were exchanged for undeveloped land that has an appraised value of $1,700,000. At the time of the exchange the common stock was trading at $62 per share on an organized exchange.

Hint: (LO 3)


Instructions

a.
Prepare the journal entry to record the acquisition of land assuming that the purchase of the stock was originally recorded using the cost method.

b.
Briefly identify the possible alternatives (including those that are totally unacceptable) for quantifying the cost of the land and briefly support your choice.




E16-1(Issuance and Conversion of Bonds) For each of the unrelated transactions described below, present the entry(ies) required to record each transaction.
1.
Grand Corp. issued $20,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, the company's investment banker estimates they would have been sold at 95. Expenses of issuing the bonds were $70,000.

2.
Hoosier Company issued $20,000,000 par value 10% bonds at 98. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $4.

3.
Sepracor, Inc. called its convertible debt in 2007. Assume the following related to the transaction: The 11%, $10,000,000 par value bonds were converted into 1,000,000 shares of $1 par value common stock on July 1, 2007. On July 1, there was $55,000 of unamortized discount applicable to the bonds, and the company paid an additional $75,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.






Hint: (LO 3)

E16-8(Issuance of Bonds with Detachable Warrants) On September 1, 2007, Sands Company sold at 104 (plus accrued interest) 4,000 of its 9%, 10-year, $1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachable warrants. Each warrant was for one share of common stock at a specified option price of $15 per share. Shortly after issuance, the warrants were quoted on the market for $3 each. No market value can be determined for the Sands Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of $30,000 were incurred.

Hint: (LO 3)


Instructions

Prepare in general journal format the entry to record the issuance of the bonds. (AICPA adapted)



E16-10(Issuance and Exercise of Stock Options) On November 1, 2007, Columbo Company adopted a stock option plan that granted options to key executives to purchase 30,000 shares of the company's $10 par value common stock. The options were granted on January 2, 2008, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option pricing model determines the total compensation expense to be $450,000.



All of the options were exercised during the year 2010: 20,000 on January 3 when the market price was $67, and 10,000 on May 1 when the market price was $77 a share.
Hint: (LO 4)


Instructions

Prepare journal entries relating to the stock option plan for the years 2008, 2009, and 2010. Assume that the employee performs services equally in 2008 and 2009.

E16-1(Issuance and Conversion of Bonds) For each of the unrelated transactions described below, present the entry(ies) required to record each transaction.
1.
Grand Corp. issued $20,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, the company's investment banker estimates they would have been sold at 95. Expenses of issuing the bonds were $70,000.

2.
Hoosier Company issued $20,000,000 par value 10% bonds at 98. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $4.

3.
Sepracor, Inc. called its convertible debt in 2007. Assume the following related to the transaction: The 11%, $10,000,000 par value bonds were converted into 1,000,000 shares of $1 par value common stock on July 1, 2007. On July 1, there was $55,000 of unamortized discount applicable to the bonds, and the company paid an additional $75,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.






Hint: (LO 3)


E16-2(Conversion of Bonds) Aubrey Inc. issued $4,000,000 of 10%, 10-year convertible bonds on June 1, 2007, at 98 plus accrued interest. The bonds were dated April 1, 2007, with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis.



On April 1, 2008, $1,500,000 of these bonds were converted into 30,000 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.
Hint: (LO 1)


Instructions

a.
Prepare the entry to record the interest expense at October 1, 2007. Assume that accrued interest payable was credited when the bonds were issued. (Round to nearest dollar.)

b.
Prepare the entry(ies) to record the conversion on April 1, 2008. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made.






E16-3(Conversion of Bonds) Vargo Company has bonds payable outstanding in the amount of $500,000, and the Premium on Bonds Payable account has a balance of $7,500. Each $1,000 bond is convertible into 20 shares of preferred stock of par value of $50 per share. All bonds are converted into preferred stock.

Hint: (LO 1)


Instructions

Assuming that the book value method was used, what entry would be made?


E16-4(Conversion of Bonds) On January 1, 2006, when its $30 par value common stock was selling for $80 per share, Plato Corp. issued $10,000,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the corporation's common stock. The debentures were issued for $10,800,000. The present value of the bond payments at the time of issuance was $8,500,000, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2007, the corporation's $30 par value common stock was split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2008, when the corporation's $15 par value common stock was selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums.

Hint: (LO 1)


Instructions

a.
Prepare in general journal form the entry to record the original issuance of the convertible debentures.

b.
Prepare in general journal form the entry to record the exercise of the conversion option, using the book value method. Show supporting computations in good form.






E16-5(Conversion of Bonds) The December 31, 2007, balance sheet of Kepler Corp. is as follows.

10% callable, convertible bonds payable (semiannual interest dates April 30 and October 31; convertible into 6 shares of $25 par value common stock per $1,000 of bond principal; maturity date April 30, 2013) $500,000
Discount on bonds payable 10,240 $489,760





On March 5, 2008, Kepler Corp. called all of the bonds as of April 30 for the principal plus interest through April 30. By April 30 all bondholders had exercised their conversion to common stock as of the interest payment date. Consequently, on April 30, Kepler Corp. paid the semiannual interest and issued shares of common stock for the bonds. The discount is amortized on a straight-line basis. Kepler uses the book value method.

Hint: (LO 1)


Instructions

Prepare the entry(ies) to record the interest expense and conversion on April 30, 2008. Reversing entries were made on January 1, 2008. (Round to the nearest dollar.)


E16-6(Conversion of Bonds) On January 1, 2007, Gottlieb Corporation issued $4,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semiannually on June 30 and December 31. Each $1,000 debenture can be converted into eight shares of Gottlieb Corporation $100 par value common stock after December 31, 2008.



On January 1, 2009, $400,000 of debentures are converted into common stock, which is then selling at $110. An additional $400,000 of debentures are converted on March 31, 2009. The market price of the common stock is then $115. Accrued interest at March 31 will be paid on the next interest date.


Bond premium is amortized on a straight-line basis.
Hint: (LO 1)


Instructions

Make the necessary journal entries for:
a.
December 31, 2008.

b.
January 1, 2009.

c.
March 31, 2009.

d.
June 30, 2009.




Record the conversions using the book value method.


E16-7(Issuance of Bonds with Warrants) Illiad Inc. has decided to raise additional capital by issuing $170,000 face value of bonds with a coupon rate of 10%. In discussions with investment bankers, it was determined that to help the sale of the bonds, detachable stock warrants should be issued at the rate of one warrant for each $100 bond sold. The value of the bonds without the warrants is considered to be $136,000, and the value of the warrants in the market is $24,000. The bonds sold in the market at issuance for $152,000.

Hint: (LO 3)


Instructions

a.
What entry should be made at the time of the issuance of the bonds and warrants?

b.
If the warrants were nondetachable, would the entries be different? Discuss.






E16-8(Issuance of Bonds with Detachable Warrants) On September 1, 2007, Sands Company sold at 104 (plus accrued interest) 4,000 of its 9%, 10-year, $1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachable warrants. Each warrant was for one share of common stock at a specified option price of $15 per share. Shortly after issuance, the warrants were quoted on the market for $3 each. No market value can be determined for the Sands Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of $30,000 were incurred.

Hint: (LO 3)


Instructions

Prepare in general journal format the entry to record the issuance of the bonds. (AICPA adapted)




E16-9(Issuance of Bonds with Stock Warrants) On May 1, 2007, Friendly Company issued 2,000 $1,000 bonds at 102. Each bond was issued with one detachable stock warrant. Shortly after issuance, the bonds were selling at 98, but the market value of the warrants cannot be determined.

Hint: (LO 3)


Instructions

a.
Prepare the entry to record the issuance of the bonds and warrants.

b.
Assume the same facts as part (a), except that the warrants had a fair value of $30. Prepare the entry to record the issuance of the bonds and warrants.






E16-10(Issuance and Exercise of Stock Options) On November 1, 2007, Columbo Company adopted a stock option plan that granted options to key executives to purchase 30,000 shares of the company's $10 par value common stock. The options were granted on January 2, 2008, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option pricing model determines the total compensation expense to be $450,000.



All of the options were exercised during the year 2010: 20,000 on January 3 when the market price was $67, and 10,000 on May 1 when the market price was $77 a share.
Hint: (LO 4)


Instructions

Prepare journal entries relating to the stock option plan for the years 2008, 2009, and 2010. Assume that the employee performs services equally in 2008 and 2009.


E16-11(Issuance, Exercise, and Termination of Stock Options) On January 1, 2008, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company's $10 par common stock at $25 per share. The options were exercisable within a 5-year period beginning January 1, 2010, by grantees still in the employ of the company, and expiring December 31, 2014. The service period for this award is 2 years. Assume that the fair value option pricing model determines total compensation expense to be $350,000.



On April 1, 2009, 2,000 options were terminated when the employees resigned from the company. The market value of the common stock was $35 per share on this date.


On March 31, 2010, 12,000 options were exercised when the market value of the common stock was $40 per share.
Hint: (LO 4)


Instructions

Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2008, 2009, and 2010.


E16-12(Issuance, Exercise, and Termination of Stock Options) On January 1, 2006, Nichols Corporation granted 10,000 options to key executives. Each option allows the executive to purchase one share of Nichols' $5 par value common stock at a price of $20 per share. The options were exercisable within a 2-year period beginning January 1, 2008, if the grantee is still employed by the company at the time of the exercise. On the grant date, Nichols' stock was trading at $25 per share, and a fair value option-pricing model determines total compensation to be $400,000.



On May 1, 2008, 8,000 options were exercised when the market price of Nichols' stock was $30 per share. The remaining options lapsed in 2010 because executives decided not to exercise their options.
Hint: (LO 4)


Instructions

Prepare the necessary journal entries related to the stock option plan for the years 2006 through 2010.


E16-13(Weighted-Average Number of Shares) Newton Inc. uses a calendar year for financial reporting. The company is authorized to issue 9,000,000 shares of $10 par common stock. At no time has Newton issued any potentially dilutive securities. Listed below is a summary of Newton's common stock activities.

1. Number of common shares issued and outstanding at December 31, 2005 2,000,000
2. Shares issued as a result of a 10% stock dividend on September 30, 2006 200,000
3. Shares issued for cash on March 31, 2007 2,000,000
Number of common shares issued and outstanding at December 31, 2007 4,200,000
4. A 2-for-1 stock split of Newton's common stock took place on March 31, 2008.







Hint: (LO 6)


Instructions

a.
Compute the weighted-average number of common shares used in computing earnings per common share for 2006 on the 2007 comparative income statement.

b.
Compute the weighted-average number of common shares used in computing earnings per common share for 2007 on the 2007 comparative income statement.

c.
Compute the weighted-average number of common shares to be used in computing earnings per common share for 2007 on the 2008 comparative income statement.

d.
Compute the weighted-average number of common shares to be used in computing earnings per common share for 2008 on the 2008 comparative income statement.




(CMA adapted)




E16-14(EPS: Simple Capital Structure) On January 1, 2008, Wilke Corp. had 480,000 shares of common stock outstanding. During 2008, it had the following transactions that affected the common stock account.

February 1 Issued 120,000 shares
March 1 Issued a 10% stock dividend
May 1 Acquired 100,000 shares of treasury stock
June 1 Issued a 3-for-1 stock split
October 1 Reissued 60,000 shares of treasury stock







Hint: (LO 6)


Instructions

a.
Determine the weighted-average number of shares outstanding as of December 31, 2008.

b.
Assume that Wilke Corp. earned net income of $3,456,000 during 2008. In addition, it had 100,000 shares of 9%, $100 par nonconvertible, noncumulative preferred stock outstanding for the entire year. Because of liquidity considerations, however, the company did not declare and pay a preferred dividend in 2008. Compute earnings per share for 2008, using the weighted-average number of shares determined in part (a).

c.
Assume the same facts as in part (b), except that the preferred stock was cumulative. Compute earnings per share for 2008.

d.
Assume the same facts as in part (b), except that net income included an extraordinary gain of $864,000 and a loss from discontinued operations of $432,000. Both items are net of applicable income taxes. Compute earnings per share for 2008.






E16-15(EPS: Simple Capital Structure) Ace Company had 200,000 shares of common stock outstanding on December 31, 2008. During the year 2009 the company issued 8,000 shares on May 1 and retired 14,000 shares on October 31. For the year 2009 Ace Company reported net income of $249,690 after a casualty loss of $40,600 (net of tax).

Hint: (LO 6)


Instructions

What earnings per share data should be reported at the bottom of its income statement, assuming that the casualty loss is extraordinary?


E16-19(EPS: Simple Capital Structure) At January 1, 2008, Langley Company's outstanding shares included the following.

280,000 shares of $50 par value, 7% cumulative preferred stock
900,000 shares of $1 par value common stock





Net income for 2008 was $2,530,000. No cash dividends were declared or paid during 2008. On February 15, 2009, however, all preferred dividends in arrears were paid, together with a 5% stock dividend on common shares. There were no dividends in arrears prior to 2008.



On April 1, 2008, 450,000 shares of common stock were sold for $10 per share, and on October 1, 2008, 110,000 shares of common stock were purchased for $20 per share and held as treasury stock.
Hint: (LO 6)


Instructions

Compute earnings per share for 2008. Assume that financial statements for 2008 were issued in March 2009.

E16-25(EPS with Contingent Issuance Agreement) Winsor Inc. recently purchased Holiday Corp., a large midwestern home painting corporation. One of the terms of the merger was that if Holiday's income for 2007 was $110,000 or more, 10,000 additional shares would be issued to Holiday's stockholders in 2008. Holiday's income for 2006 was $120,000.

Hint: (LO 7)


Instructions

a.
Would the contingent shares have to be considered in Winsor's 2006 earnings per share computations?

b.
Assume the same facts, except that the 10,000 shares are contingent on Holiday's achieving a net income of $130,000 in 2007. Would the contingent shares have to be considered in Winsor's earnings per share computations for 2006?




P16-2(Entries for Conversion, Amortization, and Interest of Bonds) Counter Inc. issued $1,500,000 of convertible 10-year bonds on July 1, 2007. The bonds provide for 12% interest payable semiannually on January 1 and July 1. The discount in connection with the issue was $34,000, which is being amortized monthly on a straight-line basis.



The bonds are convertible after one year into 8 shares of Counter Inc.'s $100 par value common stock for each $1,000 of bonds.


On August 1, 2008, $150,000 of bonds were turned in for conversion into common. Interest has been accrued monthly and paid as due. At the time of conversion any accrued interest on bonds being converted is paid in cash.
Hint: (LO 1)


Instructions

(Round to nearest dollar)


Prepare the journal entries to record the conversion, amortization, and interest in connection with the bonds as of the following dates.
a.
August 1, 2008. (Assume the book value method is used.)

b.
August 31, 2008.

c.
December 31, 2008, including closing entries for end-of-year.




(AICPA adapted)




P16-3(Stock Option Plan) ISU Company adopted a stock option plan on November 30, 2005, that provided that 70,000 shares of $5 par value stock be designated as available for the granting of options to officers of the corporation at a price of $8 a share. The market value was $12 a share on November 30, 2005.



On January 2, 2006, options to purchase 28,000 shares were granted to president Don Pedro—15,000 for services to be rendered in 2006 and 13,000 for services to be rendered in 2007. Also on that date, options to purchase 14,000 shares were granted to vice president Beatrice Leonato—7,000 for services to be rendered in 2006 and 7,000 for services to be rendered in 2007. The market value of the stock was $14 a share on January 2, 2006. The options were exercisable for a period of one year following the year in which the services were rendered. The fair value of the options on the grant date was $3 per option.


In 2007 neither the president nor the vice president exercised their options because the market price of the stock was below the exercise price. The market value of the stock was $7 a share on December 31, 2007, when the options for 2006 services lapsed.


On December 31, 2008, both president Pedro and vice president Leonato exercised their options for 13,000 and 7,000 shares, respectively, when the market price was $16 a share.
Hint: (LO 4)


Instructions

Prepare the necessary journal entries in 2005 when the stock option plan was adopted, in 2006 when options were granted, in 2007 when options lapsed, and in 2008 when options were exercised.
Submitted: 5 years ago.
Category: Homework
Expert:  SteveS replied 5 years ago.
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