Question

The stockholders’ equity section of Carla Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 1,050,000 shares, 274,000 shares issued and outstanding $2,740,000 Paid-in capital in excess of par—common stock 589,000 Retained earnings 566,000 During the current year, the following transactions occurred. 1. The company issued to the stockholders 96,000 rights. Ten rights are needed to buy one share of stock at $29. The rights were void after 30 days. The market price of the stock at this time was $31 per share. 2. The company sold to the public a $204,000, 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 $27 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $7. 3. All but 4,800 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 9,600 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 $27. The options were to expire at year-end and were considered compensation for the current year. 6. All but 960 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 titles and enter 0 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.) 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 $787,000.

Answer 1

Part 1 - Answer 1 - Memorandum Entry required in relates to Right issue

Answer 2  

	The stockholders Equity section of Carla inc
	With common stock $ 10 par value	Amnt($)
	authorised 1050000 shares
	274000 shares issued and Outstanding	27,40,000
	Paid up share capital	5,89,000
	Retained Earnings	5,66,000
	We need to account Journal Entries as below
	Case - The company sold to the public $ 204000 ,10% Bond
	issue @ 103 . The company also issued @ 100
	Purchase of common stock @ $ 27 per share
	Similar Bonds without warrants selling @ $ 96
	and warrants $ 7
	Total Warrants $ 96+$7 = $ 103
	So we need to Bonds payable , Discount on Bond Payable
	$210120*$96/$103
	Bonds Payable	1,95,840
	Discount on Bond = Balancing number of	8,160
	$ 204000-$1901359
	Calculate Stock warrant	14,280
	$210120*$7/$103
	Journal Entry	Debit($)	Credit($)
	Cash	2,10,120		($204000*103%)
	Discount on Bond Payable ( Amortized)	8,160
	Bond pAyable		2,04,000
	Stock Warrant - paid up capital		14,280
Answer 3	All but 4800 of the right shares issued as mentioned in Q1 in 30 days
	As per Q1 , the stockholders 96000 rights
	Ten rights are needed to buy oNe share of Stock $ 29
	Marke price of the share $31 per share
	Journal Entry	Debit($)	Credit($)
	cash	2,64,480		(96000-4800)/10*$29]
	Common Stcok		91,200	(96000-4800)= 9120 shares * $10 / share
	Paid up capital excess of pasr value		1,73,280	9120 shares * $19 / share
Answer 4	At the end of the year , 80 % warrant in Q 2 has been exercised
	the remaining are Outstanding
	Journal Entry	Debit($)	Credit($)
	Stock Warrants	13,056		80%*common stock Value $16320
	cash	44,064		80% *($204000/100*$27)
	Common Stock		16,320	80% *($204000/100*$10) Number of shares 1632 * $10 / share
	paid up capitak in excess of par value stock		40,800
Answer 5	During the current year , company granted stock options
	for 9600 shares At $ 10	Debit($)	Credit($)
	Stock compensation Expenses	96,000		9600*10
	Paid up stock capital		96,000
		Debit($)	Credit($)
Answer 6	Cash	2,33,280		(9600 shares - 960 shares ) * option price $27
	Paid up capital - Option Stock	86,400		$(96000 ) *90%
	Common Stock		86,400	(9600 shares - 960 shares ) *$10
	Paid up stock capital excess at par		2,33,280
	Paid up capital - Option Stock	9,600		$(96000 ) *10%
	Stock compensation Expenses		9,600
	( Option lapsed and accounted now )

Shares position - reconciliation .. as below along with disclosure in the financial Total Stockholders Equity + Retained earnings

Finally we need to take stock of capital Position	Share	Paid up capital in excess of Par - Common Stock
Opening Stock	2,74,000	89,000
Add- Stock from right refer 3rd part)	9,120	1,73,280
Add- Stock from Warrants refer 4th part)	1,632	40,800
Add- Stock from Option( refer 6th part)	9,600	2,33,280
Total	2,94,352	5,36,360
The stockholders Equity section of Carla inc
With common stock $ 10 par value	Amnt($)
authorised 1050000 shares
294352 shares issued and Outstanding	29,43,520
Paid up capital in excess of Par - Common Stock	5,36,360
Stock Warrant Account ( as above )
($ 14280-$13056)	1,224
Total paid Up capital	34,81,104
Retained Earnings	7,87,000
Total Stockholders Equity	42,68,104