Question

The stockholders’ equity section of Flint Inc. at the beginning of the current year appears. Common stock, $10 par value, authorized 1,097,000 shares, 281,000 shares issued and outstanding $2,810,000 Paid-in capital in excess of par—common stock 554,000 Retained earnings 556,000 During the current year, the following transactions occurred.

1. The company issued to the stockholders 92,000 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 $217,000, 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 $28 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $7.

3. All but 4,600 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 9,800 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 980 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

Answer 1

1)
Date	General Journal	Debit	Credit
1)	Memorandum entry made to indicate the 92,000 rights issued.
2)	Cash       (217,000 x 103%)	$      2,23,510.00
	Discount on Bonds Payable(217,000 -  (223510 x 96 /(96+7))	$           8,680.00
	Bonds Payable		$  2,17,000.00
	Paid-in Capital—Stock Warrants 223510 x  7 /(96 + 7)		$     15,190.00
3)	Cash (8740 shares x $30)	$      2,62,200.00
	Common Stock  (8740 shares x $10)		$     87,400.00
	Paid-in Capital in Excess of Par		$  1,74,800.00
	[(92,000 – 4,600) rights exercised] ÷  [(10 rights/share) = 8740 share
4)	Paid-in Capital—Stock Warrants (15190 x 80%)	$         12,152.00
	Cash (1736 x $28)	$         48,608.00
	Common Stock (1,736 X $10)		$     17,360.00
	Paid-in Capital in Excess of Par		$     43,400.00
	80% X $217,000/$100 per bond  = 1736 warrants
5)	Compensation Expense (9800 options  x $10)	$         98,000.00
	Paid-in Capital—Stock Options		$     98,000.00
6)	For options exercised:
	Cash (8820 x $33  )	$      2,46,960.00
	Paid-in Capital—Stock Options (90% x 98000)	$         88,200.00
	Common Stock (8820 X $10)		$     88,200.00
	Paid-in Capital in Excess of Par		$  2,46,960.00
	(9800 -980)  = 8820 option exercised
	For options lapsed:
	Paid-in Capital—Stock Options   (98000 - 88200)	$           9,800.00
	Compensation Expense		$       9,800.00