Question

Problem 16-1 The stockholders’ equity section of Blossom Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 911,000 shares, 309,000 shares issued and outstanding $3,090,000 Paid-in capital in excess of par—common stock 646,000 Retained earnings 604,000 During the current year, the following transactions occurred. 1. The company issued to the stockholders 102,000 rights. Ten rights are needed to buy one share of stock at $35. The rights were void after 30 days. The market price of the stock at this time was $37 per share. 2. The company sold to the public a $181,000, 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 $33 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $8. 3. All but 5,100 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 10,700 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 $33. The options were to expire at year-end and were considered compensation for the current year. 6. All but 1,070 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.) No. Account Titles and Explanation Debit Credit 1. 2. 3. 4. 5. 6. For options exercised: For options lapsed: SHOW LIST OF ACCOUNTS LINK TO TEXT LINK TO TEXT LINK TO TEXT 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 $759,000. Blossom Inc. Balance Sheet $ $ $

Answer 1

1.       Memorandum entry made to indicate the number of rights issued.

2.

Account titles and explanation	Debit	credit
Cash (181000*1.04)	188240
Discount on bonds payable	7240
Bonds payable		181000
Paid in capital – stock warrants		14480

Allocated to bonds :

(96/(96+8))*(181000*1.04) = 173760

Discount = 181000-173760 = 7240

Allocated to warrants:

(8/(96+8))*(181000*1.04) = 14480

3.

Account titles and explanation	Debit	credit
Cash	339150
Common stock (9690*10)		96900
Paid-in Capital in Excess of Par		242250

*[(102,000 – 5,100) rights exercised] ÷

                   *[(10 rights/share) X $35 = $339150

4.

Account titles and explanation	Debit	credit
Paid-in Capital—Stock Warrants (14480*80%)	11584
Cash (1448*33)	47784
Common Stock (1,448 X $10)		14480
Paid-in Capital in Excess of Par		44888

0.80 X $181,000/$100 per bond = 1,448

                   *warrants exercised; 1,600 X $30 = $48,000

5.

Account titles and explanation	Debit	credit
Compensation Expense	107000
Paid-in Capital—Stock Options		107000

$10 X 10,700 options = $107,000

6.

Account titles and explanation	Debit	credit
For options exercised:
Cash (10700-1070)*33	317790
Paid-in Capital—Stock Options	96300
Common stock (10700-1070)*10		96300
Paid-in Capital in Excess of Par		317790
For options lapsed:
Paid-in Capital—Stock Options	10700
Compensation Expense (1070*10)		10700

Part B Stockholders’ Equity:

Paid-in Capital:
Common Stock, $10 par value, authorized                                 1,000,000 shares, 329808 shares                                 issued and outstanding	3298080
Paid-in Capital in Excess of Par	1250928
Paid-in Capital—Stock Warrants	2896	4551904
Retained Earnings		759,000
Total Stockholders’ Equity		5310904

309000+9690+1488+9630 = 329808

646000+242250+44888+317790 = 1250928