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FULL SCREEN PRINTER VERSION CALCULATOR 4 ВАCK NEXT Question 2 The stockholders' equity section of Sarasota Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 995,000 shares, 309,000 shares issued and outstanding $3,090,000 623,000 Paid-in capital in excess of par-common stock. Retained earnings 539,000 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 $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 $188,000, 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 $28 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 9,300 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 930 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. (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.) Credit No. Account Titles and Explanation Debit 1.

Answer 1

Account Title & Explanation Debit Credit No. Allocated to Bonds 11 1 Memorandum Entry 96 195520 12 96 +8 13 2 Cash (188000*104/100) Discount on Bonds Payable Bonds Payable 195520 180480 14 7520 15 Discount 188000 180480 = 188000 7520 16 Paid-in Capital-Stock Warrants 15040 17 Allocated to Warrants 18 19 8* 195520 20 96 8 21 15040 22 3 Cash (102000-5100)/10*30 290700 23 Common Stock (102000-5100)/10*10 Paid In Capital in Excess of Par 96900 24 193800 25 26 27 12032 483328 4 Paid-in Capital-Stock Warrants (15040*80%) 28 Cash (188000/100* 80)*32 Common Stock (188000/100*.80)*10 Paid-in Capital in Excess of Par 29 15040 30 480320 31 32 5 Compensation Expense 93000 33 Paid-in Capital Stock Options (9300*10) 93000 34 35.

6 For options exercised: Cash (9300-930)*28 Paid-in Capital-Stock Options 36 234360 37 83700 38 Common Stock (9300-930)*10 Paid-in Capital in Excess of Par 83700 39 234360 40 41 For options lapsed Paid-in Capital-Stock Options Compensation Expense 42 9300 43 9300 44 45