Question

On 1/1/20X1, Illini has 20,000 shares of $1 par common stock outstanding. On 1/1/20X1, Illini Company's executives have 1,000 vested stock options that were awarded as compensation before. These options permit them to buy 1,000 shares of the Illini's $1 par value common stock at an exercise price of $10. The fair value of these options on the original option grant date was estimated at $4 each. During 20X1 Illini Company reacquires 1,500 common shares as treasury shares as follows: 4/1/20X1 300 shares at $10 each 7/1/20X1 400 shares at $15 each 10/1/20X1 800 shares at $20 each On April 1, 20X1, Illini issues 1,000 shares of $100 par value 8% convertible cumulative preferred stock. The shares are sold at par value. These shares are convertible into 2,000 common shares. No dividends are declared in 20X1. On January 1, 20X2, the stock price is $18 per share, and 500 options are exercised. Assume that Illini reissues treasury shares to satisfy the executives' exercise of options, and that it is using the first-in first-out cost flow method. The average stock price in 20X1 and 20X2 are the same at $16 per share. Assume that there is a zero balance in the APIC– treasury stock account on 1/1/20X1. During 20X2, Illini Company also has the following transactions: Feb 1: Issues 1,000 shares of common stock for $15 per share. April 1: Issues 1,000 shares of common stock in exchange for the right to use a competitor’s brand when marketing its products. The stock trades at $16 per share on April 1, 20X2, and independent experts put the value of the brand between $10,000 and $20,000. Please use "brand asset" to record the right. September 1: Re-issues the remaining 1,000 shares of treasury stock at $16 per share, originally acquired in 20X1. October 1: Has a 2-for-1 stock split effected in a 100% stock dividend on all outstanding common shares on this date. Hint: record the transaction at the par value of the stock. Assume that the conversion ratios for outstanding convertible bonds and convertible preferred stock would double after the 2-for-1 stock split. December 31: Declares and pays cash dividends to both preferred and common stockholders. The dividends to common stock holders are 10 cents per share. Please refer to the instructions and the table in this question.

Date	Account Name		Debit	Credit
4/1/20X1	Treasury stock		[A]
		Cash		[B]
7/1/20X1	Treasury stock		[C]
		Cash		[D]
10/1/20X1	Treasury stock		[E]
		Cash		[F]
4/1/20X1	Cash		[G]
		Preferred stock		[H]
1/1/20X2	Cash		[I]
	APIC – stock options		[J]
		Treasury stock		[K]
		APIC– treasury stock		[L]
2/1/20X2	Cash		[M]
		Common stock		[N]
		APIC		[O]
4/1/20X2	Brand Asset		[P]
		Common stock		[Q]
		APIC		[R]
9/1/20X2	Cash		[S]
	APIC– treasury stock		[T]
	Retained earnings		[U]
		Treasury stock		[V]
10/1/20X2	Retained earnings		[W]
		Common stock		[X]
12/31/20X2	Retained earnings		[Y]
		Cash		[Z]

Answer 1

Date	Account Name	Debit	Credit	Debit	Credit	Working	Remarks
4/1/20X1	Treasury Stock		[A]		3000		=300 share*$10
		Cash		[B]		3000	=300 share*$10
7/1/20X1	Treasury Stock		[C]		6000		=400 share*$15
		Cash		[D]		6000	=400 share*$15
10/1/20X1	Treasury Stock		[E]		16000		=800 share*$20
		Cash		[F]		16000	=300 share*$10
4/1/20X1	Cash		[G]		100000		=1000 share*$100
		Preference Stock		[H]		100000	=1000 share*$100
1/1/20X2	Cash		[I]		5000		=500 share*$10
	APIC- Stock Options		[J]		2000		=500 share*$4	Fair Value of Option on Grant date =$4
		Treasury Stock		[K]		6000	=300share*10+200share*15	FIFO
		APIC - Treasury Stock		[L]		1000	(balance= 5000+2000-6000)
2/1/20X2	Cash		[M]		15000		=1000 share*$15
		Common Stock		[N]		1000	=1000 share*$1
		APIC		[O]		14000	=1000 share*$14
4/1/20X2	Brand Asset		[P]		16000		=1000 share*$16	Brand Valued based on Fair Value of Stock ($16per share)
		Common stock		[Q]		1000	=1000 share*$1
		APIC		[R]		15000	=1000 share*$15
9/1/20X2	Cash		[S]		16000		=1000 share*$16
	APIC– treasury stock		[T]		1000		balance 1/1/20X2 issue
	Retained earnings		[U]		2000		=19000-16000-1000	balance
		Treasury stock		[V]		19000	=200 share*15+800share*20	FIFO
10/1/20X2	Retained earnings		[W]		22000		=(20000+1000+1000)*2/1-22000 =44000-22000	It is Assumed Dividend is given on new shares (2000) also
		Common stock		[X]		22000
12/31/20X2	Retained earnings		[Y]		20400		Preference Dividend =100000*8%*2 years + Equity Dividend =44000*10%	Preference Dividend is paid for 2 years
		Cash		[Z]		20400