ACCT - Chapter 16 (Computation)

Morgan Corporation had two issues of securities outstanding: common stock and an 8% convertible bond issue in the face amount of $16,000,000. Interest payment dates of the bond issue are June 30th and December 31st. The conversion clause in the bond indenture entitles the bondholders to receive forty shares of $20 par value common stock in exchange for each $1,000 bond. On June 30, 2018, the holders of $2,400,000 face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,100 per bond and the market price of the common stock was $35. The total unamortized bond discount at the date of conversion was $1,000,000. In applying the book value method, what amount should Morgan credit to the account "paid-in capital in excess of par," as a result of this conversion? a. $ 330,000. b. $ 160,000. c. $1,440,000. d. $ 720,000.

a. $ 330,000.

Fogel Co. has $4,000,000 of 8% convertible bonds outstanding. Each $1,000 bond is convertible into 30 shares of $30 par value common stock. The bonds pay interest on January 31 and July 31. On July 31, 2018, the holders of $1,280,000 bonds exercised the conversion privilege. On that date the market price of the bonds was 105 and the market price of the common stock was $36. The total unamortized bond premium at the date of conversion was $280,000. Fogel should record, as a result of this conversion, a a. credit of $217,600 to Paid-in Capital in Excess of Par. b. credit of $192,000 to Paid-in Capital in Excess of Par. c. credit of $89,600 to Premium on Bonds Payable. d. loss of $12,800.

a. credit of $217,600 to Paid-in Capital in Excess of Par.

On May 1, 2018, Marly Co. issued $2,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Marly's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Marly should credit Paid-in Capital from Stock Warrants for a. $175,000 b. $103,000 c. $100,000 d. $ 96,000

b. $103,000

Litke Corporation issued at a premium of $10,000 a $200,000 bond issue convertible into 4,000 shares of common stock (par value $20). At the time of the conversion, the unamortized premium is $4,000, the market value of the bonds is $220,000, and the stock is quoted on the market at $60 per share. If the bonds are converted into common, what is the amount of paid-in capital in excess of par to be recorded on the conversion of the bonds? a. $130,000 b. $124,000 c. $144,000 d. $120,000

b. $124,000

On January 1, 2018, Ellison Company granted Sam Wine, an employee, an option to buy 1,000 shares of Ellison Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $6,000. Wine exercised his option on October 1, 2018 and sold his 1,000 shares on December 1, 2018. Quoted market prices of Ellison Co. stock in 2018 were: July 1 $30 per share October 1 $36 per share December 1 $40 per share The service period is for three years beginning January 1, 2018. As a result of the option granted to Wine, using the fair value method, Ellison should recognize compensation expense for 2018 on its books in the amount of a. $6,000. b. $2,000. c. $1,500. d. $0.

b. $2,000.

On January 1, 2018 Reese Company granted Jack Buchanan, an employee, an option to buy 300 shares of Reese Co. stock for $40 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $4,800. Buchanan exercised his option on September 1, 2018, and sold his 300 shares on December 1, 2018. Quoted market prices of Reese Co. stock during 2018 were: January 1 $40 per share September 1 $48 per share December 1 $54 per share The service period is for two years beginning January 1, 2018. As a result of the option granted to Buchanan, using the fair value method, Reese should recognize compensation expense for 2018 on its books in the amount of a. $0. b. $2,400. c. $4,800 d. $5,600

b. $2,400.

On June 30, 2015, Norman Corporation granted compensatory stock options for 75,000 shares of its $20 par value common stock to certain of its key employees. The market price of the common stock on that date was $36 per share and the option price was $30. The Black-Scholes option pricing model determines total compensation expense to be $900,000. The options are exercisable beginning January 1, 2018, provided those key employees are still in Norman's employ at the time the options are exercised. The options expire on June 30, 2019. On January 4, 2018, when the market price of the stock was $42 per share, all 75,000 options were exercised. What should be the amount of compensation expense recorded by Norman Corporation for the calendar year 2017 using the fair value method? a. $0. b. $360,000. c. $450,000. d. $900,000.

b. $360,000.

Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on July 1, 2017 at 96.1 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2018, $1,200,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. What should be the amount of the unamortized bond discount on April 1, 2018 relating to the bonds converted? a. $46,800. b. $43,200. c. $23,400. d. $44,400.

b. $43,200.

On June 30, 2018, Yang Corporation granted compensatory stock options for 25,000 shares of its $24 par value common stock to certain of its key employees. The market price of the common stock on that date was $31 per share and the option price was $28. Using a fair value option pricing model, total compensation expense is determined to be $100,000. The options are exercisable beginning January 1, 2020, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on June 30, 2021. On January 4, 2020, when the market price of the stock was $36 per share, all options for the 25,000 shares were exercised. The service period is for two years beginning January 1, 2018. Using the fair value method, what should be the amount of compensation expense recorded by Yang Corporation for these options on December 31, 2018? a. $100,000 b. $50,000 c. $23,438 d. $0

b. $50,000

On December 1, 2018, Lester Company issued at 103, eight hundred of its 9%, $1,000 bonds. Attached to each bond was one detachable stock warrant entitling the holder to purchase 10 shares of Lester's common stock. On December 1, 2018, the market value of the bonds, without the stock warrants, was 95, and the market value of each stock purchase warrant was $50. The amount of the proceeds from the issuance that should be accounted for as the initial carrying value of the bonds payable would be a. $774,560. b. $782,800. c. $800,000. d. $824,000

b. $782,800.

Vernon Corporation offered detachable 5-year warrants to buy one share of common stock (par value $5) at $20 (at a time when the stock was selling for $32). The price paid for 800, $1,000 bonds with the warrants attached was $820,000. The market price of the Vernon bonds without the warrants was $720,000, and the market price of the warrants without the bonds was $80,000. What amount should be allocated to the warrants? a. $80,000 b. $82,000 c. $96,000 d. $100,000

b. $82,000

Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on July 1, 2017 at 96.1 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2018, $1,200,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. What was the effective interest rate on the bonds when they were issued? a. 9% b. Above 9% c. Below 9% d. Cannot determine from the information given.

b. Above 9%

On July 1, 2018, Chen Company issued for $9,450,000 a total of 90,000 shares of $100 par value, 7% noncumulative preferred stock along with one detachable warrant for each share issued. Each warrant contains a right to purchase one share of Chen $10 par value common stock for $15 per share. The stock without the warrants would normally sell for $9,225,000. The market price of the rights on July 1, 2018, was $2.50 per right. On October 31, 2018, when the market price of the common stock was $19 per share and the market value of the rights was $3.00 per right, 36,000 rights were exercised. As a result of the exercise of the 36,000 rights and the issuance of the related common stock, what journal entry would Chen make? a. Cash 540,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 180,000 b. Cash 540,000 Paid-in Capital—Stock Warrants 90,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 270,000 c. Cash 540,000 Paid-in Capital—Stock Warrants 225,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 405,000 d. Cash 540,000 Paid-in Capital—Stock Warrants 135,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 315,000

b. Cash 540,000 Paid-in Capital—Stock Warrants 90,000 Common Stock 360,000 Paid-in Capital in Excess of Par—Common Stock 270,000

On July 1, 2018, an interest payment date, $150,000 of Parks Co. bonds were converted into 3,000 shares of Parks Co. common stock each having a par value of $45 and a market value of $54. There is $6,000 unamortized discount on the bonds. Using the book value method, Parks would record a. no change in paid-in capital in excess of par. b. a $9,000 increase in paid-in capital in excess of par. c. a $18,000 increase in paid-in capital in excess of par. d. a $12,000 increase in paid-in capital in excess of par

b. a $9,000 increase in paid-in capital in excess of par.

On May 1, 2018, Payne Co. issued $1,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Payne's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Payne should record the bonds with a a. discount of $60,000. b. discount of $16,800. c. discount of $15,000. d. premium of $45,000

b. discount of $16,800.

On December 31, 2017, Gonzalez Company granted some of its executives options to purchase 180,000 shares of the company's $10 par common stock at an option price of $50 per share. The Black-Scholes option pricing model determines total compensation expense to be $1,350,000. The options become exercisable on January 1, 2018, and represent compensation for executives' services over a three-year period beginning January 1, 2018. At December 31, 2018 none of the executives had exercised their options. What is the impact on Gonzalez's net income for the year ended December 31, 2018 as a result of this transaction under the fair value method? a. $ 450,000 increase. b. $1,350,000 decrease. c. $ 450,000 decrease. d. $0.

c. $ 450,000 decrease.

On December 31, 2017, Houser Company granted some of its executives options to purchase 150,000 shares of the company's $50 par common stock at an option price of $60 per share. The Black-Scholes option pricing model determines total compensation expense to be $3,000,000. The options become exercisable on January 1, 2018, and represent compensation for executives' past and future services over a three-year period beginning January 1, 2018. What is the impact on Houser's total stockholders' equity for the year ended December 31, 2017, as a result of this transaction under the fair value method? a. $3,000,000 decrease b. $1,000,000 decrease c. $0 d. $1,000,000 increase

c. $0

On March 1, 2018, Ruiz Corporation issued $2,000,000 of 8% nonconvertible bonds at 104, which are due on February 28, 2038. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which entitled the bondholder to purchase for $50 one share of Ruiz common stock, par value $25. The bonds without the warrants would normally sell at 95. On March 1, 2018, the fair value of Ruiz's common stock was $40 per share and the fair value of the warrants was $2.00. What amount should Ruiz record on March 1, 2018 as paid-in capital from stock warrants? a. $73,600 b. $85,200 c. $104,000 d. $100,000

c. $104,000

On January 1, 2018, Evans Company granted Tim Telfer, an employee, an option to buy 5,000 shares of Evans Co. stock for $25 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $37,500. Telfer exercised his option on September 1, 2018, and sold his 5,000 shares on December 1, 2018. Quoted market prices of Evans Co. stock during 2018 were January 1 $25 per share September 1 $30 per share December 1 $34 per share The service period is for three years beginning January 1, 2018. As a result of the option granted to Telfer, using the fair value method, Evans should recognize compensation expense for 2018 on its books in the amount of a. $45,000. b. $37,500. c. $12,500. d. $ 7,500.

c. $12,500.

On December 31, 2017, Kessler Company granted some of its executives options to purchase 60,000 shares of the company's $10 par common stock at an option price of $50 per share. The options become exercisable on January 1, 2018, and represent compensation for executives' services over a three-year period beginning January 1, 2018. The Black-Scholes option pricing model determines total compensation expense to be $360,000. At December 31, 2018, none of the executives had exercised their options. What is the impact on Kessler's net income for the year ended December 31, 2018 as a result of this transaction under the fair value method? a. $120,000 increase b. $0 c. $120,000 decrease d. $360,000 decrease

c. $120,000 decrease

Chang Corporation issued $6,000,000 of 9%, ten-year convertible bonds on July 1, 2017 at 96.1 plus accrued interest. The bonds were dated April 1, 2017 with interest payable April 1 and October 1. Bond discount is amortized semiannually on a straight-line basis. On April 1, 2018, $1,200,000 of these bonds were converted into 500 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion. If "interest payable" were credited when the bonds were issued, what should be the amount of the debit to "interest expense" on October 1, 2017? a. $129,000. b. $135,000. c. $141,000. d. $270,000.

c. $141,000.

On January 1, 2018, Trent Company granted Dick Williams, an employee, an option to buy 400 shares of Trent Co. stock for $30 per share, the option exercisable for 5 years from date of grant. Using a fair value option pricing model, total compensation expense is determined to be $5,400. Williams exercised his option on September 1, 2018, and sold his 400 shares on December 1, 2018. Quoted market prices of Trent Co. stock during 2018 were: January 1 $30 per share September 1 $36 per share December 1 $40 per share The service period is for two years beginning January 1, 2018. As a result of the option granted to Williams, using the fair value method, Trent should recognize compensation expense for 2018 on its books in the amount of a. $6,000. b. $5,400. c. $2,700. d. $0.

c. $2,700.

During 2018, Gordon Company issued at 104 five hundred, $1,000 bonds due in ten years. One detachable stock warrant entitling the holder to purchase 15 shares of Gordon's common stock was attached to each bond. At the date of issuance, the market value of the bonds, without the stock warrants, was quoted at 96. The market value of each detachable warrant was quoted at $40. What amount, if any, of the proceeds from the issuance should be accounted for as part of Gordon's stockholders' equity? a. $0 b. $20,000 c. $20,800 d. $19,760

c. $20,800

Weiser Corp. on January 1, 2015, granted stock options for 60,000 shares of its $10 par value common stock to its key employees. The market price of the common stock on that date was $23 per share and the option price was $20. The Black-Scholes option pricing model determines total compensation expense to be $630,000. The options are exercisable beginning January 1, 2018, provided those key employees are still in Weiser's employ at the time the options are exercised. The options expire on January 1, 2019. The amount of compensation expense Weiser should record for 2017 under the fair value method is a. $0. b. $105,000. c. $210,000. d. $315,000.

c. $210,000.

On May 1, 2018, Payne Co. issued $1,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Payne's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Payne's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Payne should credit Paid-in Capital from Stock Warrants for a. $57,600. b. $60,000. c. $61,800. d. $105,000.

c. $61,800.

On April 7, 2018, Kegin Corporation sold a $6,000,000, twenty-year, 8 percent bond issue for $6,360,000. Each $1,000 bond has two detachable warrants, each of which permits the purchase of one share of the corporation's common stock for $30. The stock has a par value of $25 per share. Immediately after the sale of the bonds, the corporation's securities had the following market values: 8% bond without warrants $1,008 Warrants 21 Common stock 28 What accounts should Kegin credit to record the sale of the bonds? a. Bonds Payable $6,000,000 Premium on Bonds Payable 232,800 Paid-in Capital—Stock Warrants 127,200 b. Bonds Payable $6,000,000 Premium on Bonds Payable 48,000 Paid-in Capital—Stock Warrants 252,000 c. Bonds Payable $6,000,000 Premium on Bonds Payable 105,600 Paid-in Capital—Stock Warrants 254,400 d. Bonds Payable $6,000,000 Premiums on Bonds Payable 360,000

c. Bonds Payable $6,000,000 Premium on Bonds Payable 105,600 Paid-in Capital—Stock Warrants 254,400

On May 1, 2018, Marly Co. issued $2,500,000 of 7% bonds at 103, which are due on April 30, 2028. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Marly's common stock, $15 par value, were attached to each $1,000 bond. The bonds without the warrants would sell at 96. On May 1, 2018, the fair value of Marly's common stock was $35 per share and of the warrants was $2. On May 1, 2018, Marly should record the bonds with a a. discount of $100,000. b. discount of $25,000. c. discount of $28,000. d. premium of $75,000.

c. discount of $28,000.

In order to retain certain key executives, Smiley Corporation granted them incentive stock options on December 31, 2017. 150,000 options were granted at an option price of $35 per share. Market prices of the stock were as follows: December 31, 2018 $46 per share December 31, 2019 51 per share The options were granted as compensation for executives' services to be rendered over a two-year period beginning January 1, 2018. The Black-Scholes option pricing model determines total compensation expense to be $1,500,000. What amount of compensation expense should Smiley recognize as a result of this plan for the year ended December 31, 2018 under the fair value method? a. $2,625,000. b. $1,650,000. c. $1,500,000. d. $ 750,000.

d. $ 750,000.

In 2017, Eklund, Inc., issued for $103 per share, 90,000 shares of $100 par value convertible preferred stock. One share of preferred stock can be converted into three shares of Eklund's $25 par value common stock at the option of the preferred stockholder. In August 2018, all of the preferred stock was converted into common stock. The market value of the common stock at the date of the conversion was $30 per share. What total amount should be credited to additional paid-in capital from common stock as a result of the conversion of the preferred stock into common stock? a. $1,530,000. b. $1,170,000. c. $2,250,000. d. $2,520,000.

d. $2,520,000.

On January 1, 2018, Ritter Company granted stock options to officers and key employees for the purchase of 20,000 shares of the company's $1 par common stock at $20 per share as additional compensation for services to be rendered over the next three years. The options are exercisable during a five-year period beginning January 1, 2021 by grantees still employed by Ritter. The Black-Scholes option pricing model determines total compensation expense to be $180,000. The market price of common stock was $26 per share at the date of grant. The journal entry to record the compensation expense related to these options for 2018 would include a credit to the Paid-in Capital—Stock Options account for a. $0. b. $36,000. c. $40,000. d. $60,000.

d. $60,000