Question

The stockholders’ equity section of Stellar Inc. at the beginning of the current year appears below.

Common stock, $10 par value, authorized 1,043,000 shares, 321,000 shares issued and outstanding$3,210,000Paid-in capital in excess of par—common stock562,000Retained earnings624,000

During the current year, the following transactions occurred:

1) The company issued to the stockholders 109,000 rights. Ten rights are needed to buy one share of stock at $30. The rights were void after 30 days. The market price of the stock at this time was $32 per share. 2) The company sold to the public a $204,000, 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 $28 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $8. 3) All but 5,450 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 10,800 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 $28. The options were to expire at year-end and were considered compensation for the current year. 6) All but 1,080 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 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 $771,000.

Answer 1