Question

The stockholders’ equity section of Monty Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 928,000 shares, 292,000 shares issued and outstanding $2,920,000 Paid-in capital in excess of par—common stock 578,000 Retained earnings 582,000 During the current year, the following transactions occurred. 1. The company issued to the stockholders 95,000 rights. Ten rights are needed to buy one share of stock at $31. The rights were void after 30 days. The market price of the stock at this time was $33 per share. 2. The company sold to the public a $191,000, 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 $29 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $8. 3. All but 4,750 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 9,100 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 $29. The options were to expire at year-end and were considered compensation for the current year. 6. All but 910 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.

(a) Prepare general journal entries for the current year to record the transactions listed above. List of accounts: Bond Conversion Expense Bonds Payable Cash Compensation Expense Common Stock Convertible Preferred Stock Debt Conversion Expense Discount on Bonds Payable Income Summary Incremental Cash Insurance Expense Interest Expense Interest Payable Interest Receivable Liability under Stock Appreciation Plan No Entry Paid-in Capital in Excess of Par - Common Stock Paid-in Capital in Excess of Par - Preferred Stock Paid-in Capital-Expired Stock Options Paid-in Capital-Stock Options Paid-in Capital-Stock Warrants Premium on Bonds Payable Preferred Stock Retained Earnings Unamortized Bond Issue Costs Unearned Compensation

Answer 1

1)
Date	Particulars	Dr. Amt.	Cr. Amt.
1	No Entry
	Memorandum entry made to indicate the number of rights issued.
2	Cash	$ 191,000.00
	Discount on Bonds Payable	$   14,692.31
	Bonds Payable		$ 191,000.00
	Paid-in-Capital - Stock Warrants (8/(96+8) x 191,000		$   14,692.31
Allocated to Bonds	(96/(96+8) x 191,000	$ 176,307.69
	Discount = $191,000 – $176308	$   14,692.31
3	Cash (95,000 Rights - 4,750 Rights)/10 X $31	$ 279,775.00
	Common Stock (95,000 Rights - 4,750 Rights)/10 X $10		$   90,250.00
	Paid in Capital in excess of par (95,000 Rights - 4,750 Rights)/10 X $(31-10)		$ 189,525.00
4	Paid-in-Capital - Stock Warrants  (14692 x 80%)	11,754
	Cash  (80%  X $191,000/$100 per bond = 1528 x $29	44,312
	Common Stock (1528 x $10)		15,280
	Paid in Capital in excess of par (1528 x $19)		29,032
5	Compensation Expenses (9,100 Shares X $10)	91,000
	Paid-in-Capital - Stock Option		91,000
1-Jun	Cash (10000-1000) x  29	261,000
	Paid-in-Capital - Stock Option  (91000 x 90%)	81,900
	Common Stock (9000 x $10)		90,000
	Paid in Capital in excess of par		252,900
	(For Option Excercised)
2-Jun	Paid-in-Capital - Stock Option ( 910x 10)	9,100
	Compensation Expenses		9,100
	(For Option Lapsed)