Question

Question 3 The stockholders’ equity section of Wildhorse Inc. at the beginning of the current year appears below.

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.

Prepare general journal entries for the current year to record the transactions listed above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.)

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 $790,000.

Answer 1

1.

Trn.	Account Titles	Debit	Credit
1)	No entry is required for the issuance of stock rights until exrecised
2)	Cash [$213,000 × 1.03]	$219,390
	Discount on bond payable [($213,000 × (1 - 0.96)]	$8,520
	Paid in capital stock warrants [($213,000/$100) × $7]		$14,910
	Bond payable		$213,000
3)	Cash [(103,000 - 5,150)/10 ] × $33	$322,905
	Common stock [9,785 × $10]		$97,850
	Paid in capital in excess of par-common stock		$225,055
4)	Paid in capital stock warrants [$14,910 × 80%]	$11,928
	Cash [2130 × 80% × $31]	$52,824
	Common stock [1491 × $10]		$14,910
	Paid in capital in excess of par-common stock		$49,842
5)	Compensation Expense [9,000 × $10]	$90,000
	Paid-in-capital stock options		$90,000
6)	For option exercised:
	Cash (9,000 - 900) × $31]	$251,100
	Paid in capital stock options	$81,000
	Common stock [(9,000 - 900) × $10]		$81,000
	Paid in capital in excess of par-common stock		$251,100

	Paid-in-capital stock options	$90,000
	Compensation Expense		$90,000

___________________________________________________________

2.

Stockholders' equity
paid-in-capital
Common stock [312,376 × $10]	$3,123,760
[293,000 + 9785 + 1491 + 8100 = 312376]
Paid in capital in excess of par-common stock	$1,129,997
[$604000 + $225055 + $49842 + $251100]
Paid in capital stock warrants	$2,982
[$14910 - $11928]
		$4,256,739
Retained Earnings		$790,000
Total stockholders' equity		$5,046,739

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