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Chapter 16: Q7BE (page 874)

Refer to the data for Barwood Corporation in BE16-6. Repeat the requirements assuming that instead of options, Barwood granted 2,000 shares of restricted stock.

Short Answer

Expert verified

Unearned revenue will be debited by $130,000, common stock will be credited by $10,000, and Paid-in Capital in Excess of Par— Common Stock under the credit of $120,000. Compensation expense will be $65,000 debit for 2017 and 2018, and unearned compensation is $65,000 credit for 2017 and 2018.

Step by step solution

01

The given information is as follows:

Restricted stock 2000 shares

02

Journal entry

Date

Description

DEBIT

CREDIT

1/1/17

Unearned Compensation

$130,000

Common Stock (2,000 X $5)

$10,000

Paid in Capital in Excess of Par— Common Stock

$120,000

Being unearned compensation at par

12/31/17

Compensation Expense

$65,000

Unearned Compensation

$65,000

Being compensation expense incurred

12/31/18

Compensation Expense

$65,000

Unearned Compensation

$65,000

Being compensation expense incurred

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Most popular questions from this chapter

Question: . Mae Jong Corp. issues \(1,000,000 of 10% bonds payable which may be converted into 10,000 shares of \)2 par value ordinary shares. The market rate of interest on similar bonds is 12%. Interest is payable annually on December 31, and the bonds were issued for total proceeds of $1,000,000. In accounting for these bonds, Mae Jong Corp. will:

(a) first assign a value to the equity component, then determine the liability component.

(b) assign no value to the equity component since the conversion privilege is not separable from the bond.

(c) first assign a value to the liability component based on the face amount of the bond.

(d) use the “with-and-without” method to value the compound instrument.

Ferraro, Inc. established a stock-appreciation rights (SARs) program on January 1, 2017, which entitles executives to receive cash at the date of exercise for the difference between the market price of the stock and the pre-established price of \(20 on 5,000 SARs. The required service period is 2 years. The fair value of the SARs are determined to be \)4 on December 31,2017, and $9 on December 31, 2018. Compute Ferraro’s compensation expense for 2017 and 2018.

Explain the treasury-stock method as it applies to options and warrants in computing dilutive earnings per share data.

(Issuance, Exercise, and Termination of Stock Options) On January 1, 2018, Titania Inc. granted stock options to officers and key employees for the purchase of 20,000 shares of the company’s \(10 par common stock at \)25 per share. The options were exercisable within a 5-year period beginning January 1, 2020, by grantees still in the employ of the company, and expiring December 31, 2024. The service period for this award is 2 years. Assume that the fair value option-pricing model determines total compensation expense to be \(350,000.On April 1, 2019, 2,000 options were terminated when the employees resigned from the company. The market price of the common stock was \)35 per share on this date.On March 31, 2020, 12,000 options were exercised when the market price of the common stock was $40 per share.

Instructions

Prepare journal entries to record issuance of the stock options, termination of the stock options, exercise of the stock options, and charges to compensation expense, for the years ended December 31, 2018, 2019, and 2020.

Bridgewater Corp. offered holders of its 1,000 convertible bonds a premium of \(160 per bond to induce conversion into shares of its common stock. Upon conversion of all the bonds, Bridgewater Corp. recorded the \)160,000 premium as a reduction of paid-in capital. Comment on Bridgewater’s treatment of the $160,000 “sweetener.”
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