Question

Question 5 --/1 View Policies Current Attempt in Progress The stockholders' equity section of Metlock Inc. at the beginning of the current year appears below. Common stock, $10 par value, authorized 1,097,000 shares, 281,000 shares issued and outstanding $2,810,000 Paid-in capital in excess of par-common stock 554,000 Retained earnings 556,000 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 $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 $217,000, 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 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 9,800 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 $28. The options were to expire at year-end and were considered compensation for the current year. All but 980 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. 6.

Answer 1

Part A

No.	General journal	Debit	Credit
1	No entry
	No entry
	(to indicate the number of rights issued including full details as to characteristics)
2	Cash	214830
	Discount on bonds payable (217000*4%)	8680
	Bonds Payable ($217,000 * 0.96)		208320
	Paid in capital—Stock Warrants (2170*7)		15190
	(To record the issue of bonds)
3	Cash (92000-4600)/10*30	262200
	Common Shares (92000-4600)/10*10		87400
	Paid in capital in excess of par		174800
	(to record the right issue exercised)
4	Paid in capital —Stock Warrants (7*(2170*80%))	12152
	Cash ((2170*80%)*28)	48608
	Common shares (2170*7)		15190
	Paid in capital in excess of par		45570
	(to record the stock warrants exercised)
5	Compensation Expense ($10 X 9800 options)	98000
	Paid in capital –Stock Options		98000
	(to record stock options granted at fair value)
6	For options exercised:
	Cash (9800*28*90%)	246960
	Paid in capital—Stock Options (80% X $50,000)	88200
	Common Shares		88200
	Paid in capital in excess of par		246960
	For options lapsed:
	Paid in capital —Stock Options	9800
	Compensation Expense		9800