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Question 5 View Policies Current Attempt in Progress The stockholders' equity section of Teal Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 954,000 shares, 307,000 shares issued and outstanding $3,070,000 Paid-in capital in excess of par-common stock 553,000 Retained earnings 614,000 During the current year, the following transactions occurred. 1. The company issued to the stockholders 92,000 rights. Ten rights are needed to buy one share of stock at $35. The rights were void after 30 days. The market price of the stock at this time was $37 per share. 2. The company sold to the public a $194,000, 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 $33 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $7. 3. All but 4,600 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 10,800 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 $33. The options were to expire at year-end and were considered compensation for the current year. 6. All but 1,080 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. Prepare general journal entries for the current year to record the transactions listed above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account tities and enter Ofor the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, eg. 5,125.) No. Account Titles and Explanation Debit Credit 6. For options exercised: For options lapsed:

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Solution: Date Working note: For JE 2) Allocated to Bond: (96/196+7)*199820 = 186240 Discount (194000 -186240) = $ 7,760 Warrant: (7)/(96+7) *199820 = 13580 Jounal entries Account title and explaination Debit Credit No Entry No Entry NO JE - Only Memorandum entry is made to indicate the number of rights issued.) Cash (194000*103%) 199820 Discount on Bond Payable 7760 Bond Payable 194000 Paid-in Capital-Stock Warrants 13580 (To record the issuance of Bond) Cash [(92000-4600)/10]*35 305900 Common Stock [(92000-4600)/10]*10 87400 Paid-in capital in excess of par-common stock 218500 (To record the exercise of right issues) Cash (1940*80%)*33 51216 Paid-in Capital-Stock Warrants (13580*80%) 10864 Common Stock (1940*80%)*10 15520 Paid-in capital in excess of par-common stock (plug) 46560 (To record the exercise of 80% warrant) Compensation Expense (10800*10) 108000 Paid-in Capital-Stock Options 108000 (To record the stock option compensation expense) Cash (10800-1080)*33 320760 Paid-in Capital - Stock Options - (108000*90%) 97200 Common Stock (10800-1080)*10 97200 Paid-in capital in excess of par-common stock 320760 (To record the exercise the stock option) Paid-in Capital-Stock Options - (108000*10%) $ 10,800 Compensation Expense $ 10,800 (To record the option lepsed)