Question

The stockholders’ equity section of Grouper Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 1,007,000 shares, 319,000 shares issued and outstanding $3,190,000 Paid-in capital in excess of par—common stock 575,000 Retained earnings 549,000

During the current year, the following transactions occurred:

1. The company issued to the stockholders 100,000 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 $195,000, 10% bond issue at 103. 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 $7.

3. All but 5,000 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.

1)Prepare general journal entries for the current year to record the transactions listed above.

2) 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 $680,000.

Answer 1

1. Memo entry to indicate 100,000 rights issued.

S.no	Particulars	Debit $	Credit $
2.	Cash A/c	200850
	Discount on Bonds A/c	7800
	Bonds Payable A/c		195,000
	Paid in Capital - Stock Warrant		13,650
3.	Cash A/c	285000
	Common Stock		95000
	Paid in Capital		190000
4.	Paid in Capital - Stock Warrant	10920
	Cash	43680
	Common Stock		15600
	Paid in capital in excess of par		39000
5.	Compensation Expenses	93000
	Paid in Capital - Stock Options		93000