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Chapter 16: Q13E (page 877)

Accounting for Restricted Stock) Derrick Company issues 4,000 shares of restricted stock to its CFO, Dane Yaping, on January 1, 2017. The stock has a fair value of \(120,000 on this date. The service period related to this restricted stock is 4 years. Vesting occurs if Yaping stays with the company for 4 years. The par value of the stock is \)5. At December 31, 2018, the fair value of the stock is $145,000.

Instructions

(a) Prepare the journal entries to record the restricted stock on January 1, 2017 (the date of grant), and December 31, 2018.

(b) On March 4, 2019, Yaping leaves the company. Prepare the journal entry (if any) to account for this forfeiture.

Short Answer

Expert verified

(a) Unearned compensation will be debited by $120,000, and common stock and paid-in capital excess of par-common stock will be credited $20,000 and $100,000 respectively. Compensation expense will be debited, and unearned compensation will be credited by $30,000, respectively.

(b) Common stock and paid-in capital excess of par- common stock will be debited by $20,000 and $100,000 respectively, and unearned compensation and compensation expense will be credited by $60,000, respectively.

Step by step solution

01

(a) Journal entry

Date

Accounts and Explanation

Debit

Credit

January 1, 2017

Unearned Compensation

$120,000

Common Stock (4,000 X $5)

$20,000

Paid-in Capital Excess of Par鈥� Common stock

$100,000

December 31, 2018

Compensation Expense

$30,000

Unearned Compensation ($120,000 梅 4)

$30,000

02

(b) Journal entry

Date

Accounts and Explanation

Debit

Credit

March 4, 2019

Common Stock

$20,000

Paid-in Capital Excess of Par鈥� Common stock

$100,000

Unearned Compensation

$60,000

Compensation Expense (2 X $30,000)

$60,000

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Most popular questions from this chapter

Issuance and Exercise of Stock Options) On November 1, 2017, Columbo Company adopted a stock-option plan that granted options to key executives to purchase 30,000 shares of the company鈥檚 \(10 par value common stock. The options were granted on January 2, 2018, were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at \)40, and the fair value option-pricing model determines the total compensation expense to be \(450,000.All of the options were exercised during the year 2020: 20,000 on January 3 when the market price was \)67, and 10,000 on May 1 when the market price was $77 a share.

Instructions

Prepare journal entries relating to the stock option plan for the years 2018, 2019, and 2020. Assume that the employee performsservices equally in 2018 and 2019.

On July 1, 2017, Roberts Corporation issued \(3,000,000 of 9% bonds payable in 20 years. The bonds include detachable warrants giving the bondholder the right to purchase for \)30 one share of \(1 par value common stock at any time during the next 10 years. The bonds were sold for \)3,000,000. The value of the warrants at the time of issuance was $100,000. Prepare the journal entry to record this transaction.

CA16-6 WRITING (EPS, Antidilution) Brad Dolan, a stockholder of Rhode Corporation, has asked you, the firm鈥檚 accountant, to explain why his stock warrants were not included in diluted EPS. In order to explain this situation, you must briefly explain what dilutive securities are, why they are included in the EPS calculation, and why some securities are antidilutive and thus not included in this calculation.

Rhode Corporation earned \(228,000 during the period, when it had an average of 100,000 shares of common stock outstanding. The common stock sold at an average market price of \)25 per share during the period. Also outstanding were 30,000 warrants that could be exercised to purchase one share of common stock at $30 per warrant.

Instructions

Write Mr. Dolan a 1鈥�1.5-page letter explaining why the warrants are not included in the calculation.

Angela Corporation issues 2,000 convertible bonds at January 1, 2016. The bonds have a 3-year life, and are issued at par with a face value of \(1,000 per bond, giving total proceeds of \)2,000,000. Interest is payable annually at 6%. Each bond is convertible into 250 ordinary shares (par value of $1). When the bonds are issued, the market rate of interest for similar debt without the conversion option is 8%.

Instructions

(a) Compute the liability and equity component of the convertible bond on January 1, 2016.

(b) Prepare the journal entry to record the issuance of the convertible bond on January 1, 2016.

(c) Prepare the journal entry to record the repurchase of the convertible bond for cash at January 1, 2019, its maturity date.

(Issuance and Conversion of Bonds) For each of the unrelated transactions described below, present the entry(ies) required to record each transaction.

1. Grand Corp. issued \(20,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, the company鈥檚 investment banker estimates they would have been sold at 95.

2. Hoosier Company issued \)20,000,000 par value 10% bonds at 98. One detachable stock purchase warrant was issued with each \(100 par value bond. At the time of issuance, the warrants were selling for \)4.

3. Suppose Sepracor, Inc. called its convertible debt in 2017. Assume the following related to the transaction. The 11%, \(10,000,000 par value bonds were converted into 1,000,000 shares of \)1 par value common stock on July 1, 2017. On July 1, there was \(55,000 of unamortized discount applicable to the bonds, and the company paid an additional \)75,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.
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