Chapter 16 Homework Solutions

 

BE16-1 Archer Inc. issued $4,000,000 par value, 7% convertible bonds at 99 for cash. If the bonds had not included the conversion feature, they would have sold for 95. repare the !ournal entry to record the issuance of the bonds. BE16-2 etren"o #orporation has outstandin ,000 $&,000 bonds, each convertible into 50 shares of $&0 par value co''on stoc". (he bonds are converted on )ece'ber *&, 0&4, when the una'orti+ed discount is $*0,000 and the 'ar"et price of the stoc" is $& per share. ecord the conversion usin the boo" value approach. BE16-3 echstein #orporation issued ,000 shares of $&0 par value co''on stoc" upon conversion of  &,000 shares of $50 par value preferred stoc". (he preferred stoc" was oriinally issued at $-0 per share.  (he co''on stoc" stoc" is tradin tradin at $- per share share at the ti'e ti'e of conversion. conversion. ecord ecord the conversion conversion of the preferred stoc". BE16-4 isler #orporation issued ,000 $&,000 bonds at &0&. ach bond was issued with one detachable stoc" warrant. After the bonds were sellinthe in the 'ar"et 9/, and the price of $40. se theissuance, proportional 'ethod to record issuance of at the bonds andwarrants warrants.had a 'ar"et BE16-5 1cIntyre #orporation issued ,000 $&,000 bonds at &0&. ach bond was issued with one detachable stoc" warrant. After issuance, the bonds were sellin separately at 9/. (he 'ar"et price of the warrants without the bonds cannot be deter'ined. se the incre'ental 'ethod to record the issuance of the bonds and warrants. BE16-6 2n 3anuary &, 0&4, arwood #orporation ranted 5,000 options to eecutives. ach option entitles the holder to purchase one share of arwood6s $5 par value co''on stoc" at $50 per share at any ti'e durin the net 5 years. (he 'ar"et price of the stoc" is $-5 per share on the date of rant. (he fair value of the options at the rant date is $&50,000. (he period of benet is  years. repare arwood6s !ournal entries for 3anuary &, 0&4, and )ece'ber *&, 0&4 and 0&5. BE16-7 efer to the data for arwood #orporation in &-8-. epeat the reuire'ents assu'in that instead of options, arwood ranted ,000 shares of restricted stoc". BE16-8 2n 3anuary &, 0&4 :the date of rant;, riendly #o'pany issued ,000 $&,000 bonds at &0. ach bond was issued with one detachable stoc" warrant. hortly after issuance, the bonds were sellin at 9/, but the fair value of the warrants cannot be deter'ined. &nstructions %a) repare the entry to record the issuance of the bonds and warrants. %b) Assu'e the sa'e facts as part :a;, ecept that the warrants had a fair value of $*0. repare the entry to record te issuance o( te bonds and /arrants#

( a) Cash( $2, 000, 000X1. 02) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 040, 000 D i s co u n t on B o n d s P a yabl e. . . . . . . . . . . . . . . . . . . . . . [ ( 1 – . 9 8 ) X $2 , 0 0 0 , 00 0 ] BondsPayabl e. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Pai di nCapi t al —St ockWar r ant s. . . . . . . . .

40, 00 0 2, 000, 000 80, 000*

* $2, 040, 000–( $2, 000, 000X. 98) ( b) Mar ketval ueofbondswi t houtwar r ant s ( $2, 000, 00 0X. 98) Mar ketval ueofwar r ant s( 2, 000X$30) Tot almar ketval ue

$1, 960, 000 60, 000 $2, 020, 000

$ 1, 96 0, 0 00 X$2, 040, 000=$1, 979, 406 Val ueassi gnedt obonds $ 2, 02 0, 0 00 $ 60 , 0 00 X$2, 040, 000=$ 60, 594 Val ueassi gnedt owar r ant s $ 2, 02 0, 0 00 $2, 040 , 000 Tot al

Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 040, 000 Di scountonBondsPayabl e. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20, 594 BondsPayabl e. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2, 000, 000 Pai di nCapi t al —St ockWar r ant s. . . . . . . . . . . . . . . . . . . . . . . 60, 594

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EXERCI SE1612( 15–25m mi i nut es) E16-12 %&ssuance, Eercise, and ermination ermination o( *toc "tions) 2n 3anuary &, 0&*, Cichols #orporation ranted &0,000 options to "ey eecutives. ach option allows the eecutive to purchase one share of  Cichols6 $5 par value co''on stoc" at a price of $0 per share. (he options were eercisable within a 8year period beinnin 3anuary &, 0&5, if the rantee is still e'ployed by the co'pany at the ti'e of the eercise. 2n the rant date, Cichols6 stoc" was tradin at $5 per share, and a fair value option8pricin 'odel deter'ines total co'pensation to be $400,000. 2n 1ay &, 0&5, /,000 options were eercised when the 'ar"et price of Cichols6 stoc" was $*0 per share. (he re'ainin options lapsed in 0&7 because eecutives decided not to eercise their options. &nstructions re"are te necessary ourna+ entries re+ated to te stoc o"tion "+an (or te years 2013 troug 2017#

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Noent r y

12/ 31/ 13 Compensat i onExpense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200, 000 Pai di nCapi t al —St ockOpt i ons. . . . . . . . . . . ( $ 40 0, 00 0X1/ 2 ) 12/ 31/ 14 Compensat i onExpense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200, 000 Pai di nCapi t al —St ockOpt i ons. . . . . . . . . . . 5/ 1/ 15

200, 000

200, 000

Cash( 8, 000X$20) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160, 000 Pai di nCapi t al —St ockOpt i ons. . . . . . . . . . . . . . . . . . 320, 000* Com mm monSt ock( 8, 000X$5) . . . . . . . . . . . . . . . . . 40, 000 Pai di nCapi t ali nEx cessof Par —Com mm monSt ock. . . . . . . . . . . . . . . . . . . . . . . . 440, 000 * ( $400, 000X8, 000/ 10, 000)

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Pai di nCapi t al —St ockOpt i ons. . . . . . . . . . . . . . . . . . Pai di nCapi t al —Expi r edSt ock   Opt i ons( $400, 000–$320, 000) . . . . . . . . .

80, 000 80, 000

EXERCI SE1613( 10–15m mi i nut es) E16-13 %.ccounting (or estricted *toc) )erric" #o'pany issues 4,000 shares of restricted stoc" to its #>2, )ane Dapin, on 3anuary &, 0&4. (he stoc" has a fair value of $&0,000 on this date. (he service period related to this restricted stoc" is 4 years. Bestin occurs if Dapin stays with the co'pany for 4 years. (he par value of the stoc" is $5. At )ece'ber *&, 0&5, the fair value of the stoc" is $&45,000. &nstructions %a) repare the !ournal entries to record the restricted stoc" on 3anuary &, 0&4 :the date of rant;, and )ece'ber *&, 0&5. %b) 2n 1arch 4, 0&-, Dapin leaves the co'pany. repare the !ournal entry :if any; to account for this (or(eiture#

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Unear nedCompensat i on. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120, 000

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CommonSt ock( 4, 000X$5) . . . . . . . . . . . . . . . . . . . . . Pai di nCa pi t a lEx ce ssofPa r —  Commonst ock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

20, 000

100, 000 12/ 31/ 15 Compensat i onExpense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30, 000 Unear nedCom mp pensat i on( $120, 000÷4) . . . 30, 000 ( b)3/ 4/ 16

C o m m o na S t o c k . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0 00 Pa i di n C p i t a l E x c e s s o f P a r . . . . . . . . . . . . . . . . . . . . . . . . . 12 00 0, , 00 0 Unear nedCompensat i on. . . . . . . . . . . . . . . . . . . . . . . . . 60, 000 Comp mpens at i onExpe ns e( 2X$30, 000) . . . . 60, 000

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