Chapter 16
Chapter 16 Extra Problem
Prepare the necessary entries from 1/1/14-2/1/16 for the following events using the fair value method. If no entry is needed, write "No Entry Necessary."
1. On 1/1/14, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 18,000 shares of common stock at $40 per share. The par value is $10 per share.
2. On 2/1/14, options were granted to each of five executives to purchase 18,000 shares. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. The options expire on 2/1/16. It is assumed that the options were for services performed equally in 2014 and 2015. The Black-Scholes option pricing model determines total compensation expense to be $1,900,000.
3. At 2/1/16, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.
Solution:
1. 1/1/14 No entry necessary.
2. 2/1/14 No entry necessary.
12/31/14 Compensation Expense 950,000 Paid-in Capital—Stock Options 950,000
12/31/15
Compensation Expense 950,000 Paid-in Capital—Stock Options 950,000
3. 2/1/16 Cash (4 × 18,000 × $40) 2,880,000 Paid-in Capital—Stock Options ($1,950,000 × 4/5) 1,560,000 Common Stock 720,000 Paid-in Capital in Excess of Par 3,720,000
Paid-in Capital—Stock Options 340,000 Paid-in Capital—Expired Stock Options 340,000
Chapter 16 Extra Problem
For each of the unrelated transactions described below, present the entry(ies) required to record the bond transactions.
1. On August 1, 2015, Lane Corporation called its 10% convertible bonds for conversion. The $7,000,000 par bonds were converted into 280,000 shares of $20 par common stock. On August 1, there was $700,000 of unamortized premium applicable to the bonds. The fair value of the common stock was $20 per share. Ignore all interest payments.
2. Packard, Inc. decides to issue
Prepare the necessary entries from 1/1/14-2/1/16 for the following events using the fair value method. If no entry is needed, write "No Entry Necessary."
1. On 1/1/14, the stockholders adopted a stock option plan for top executives whereby each might receive rights to purchase up to 18,000 shares of common stock at $40 per share. The par value is $10 per share.
2. On 2/1/14, options were granted to each of five executives to purchase 18,000 shares. The options were non-transferable and the executive had to remain an employee of the company to exercise the option. The options expire on 2/1/16. It is assumed that the options were for services performed equally in 2014 and 2015. The Black-Scholes option pricing model determines total compensation expense to be $1,900,000.
3. At 2/1/16, four executives exercised their options. The fifth executive chose not to exercise his options, which therefore were forfeited.
Solution:
1. 1/1/14 No entry necessary.
2. 2/1/14 No entry necessary.
12/31/14 Compensation Expense 950,000 Paid-in Capital—Stock Options 950,000
12/31/15
Compensation Expense 950,000 Paid-in Capital—Stock Options 950,000
3. 2/1/16 Cash (4 × 18,000 × $40) 2,880,000 Paid-in Capital—Stock Options ($1,950,000 × 4/5) 1,560,000 Common Stock 720,000 Paid-in Capital in Excess of Par 3,720,000
Paid-in Capital—Stock Options 340,000 Paid-in Capital—Expired Stock Options 340,000
Chapter 16 Extra Problem
For each of the unrelated transactions described below, present the entry(ies) required to record the bond transactions.
1. On August 1, 2015, Lane Corporation called its 10% convertible bonds for conversion. The $7,000,000 par bonds were converted into 280,000 shares of $20 par common stock. On August 1, there was $700,000 of unamortized premium applicable to the bonds. The fair value of the common stock was $20 per share. Ignore all interest payments.
2. Packard, Inc. decides to issue