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Chapter 16: Q14E (page 876)

(Accounting for Restricted Stock) Tweedie Company issues 10,000 shares of restricted stock to its CFO, Mary Tokar, on January 1, 2017. The stock has a fair value of \(500,000 on this date. The service period related to this restricted stock is 5 years. Vesting occurs if Tokar stays with the company until December 31, 2021. The par value of the stock is \)10. At December31, 2017, the fair value of the stock is $450,000.

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 July 25, 2021, Tokar 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 $500,000, and common stock and paid in capital in excess of par- common stock will be credited by $100,000 and $400,000, respectively. Compensation expense will be debited, and unearned compensation will be credited by $100,000, respectively.

(b) Common stock and paid In capital in excess of par- common stock will be debited by $100,000 and $400,000, respectively, and compensation expense and unearned compensation will be credited $400,000 and $100,000, respectively.

Step by step solution

01

(a) Journal Entry

Date

Accounts and Explanation

Debit

Credit

January 1, 2017

Unearned Compensation

$500,000

Common Stock ($10 X 10,000)

$100,000

Paid-in Capital in Excess of Par鈥� Common Stock (Bal. fig.)

$400,000

December 31, 2018

Compensation Expense ($500,000 / 5)

$100,000

Unearned Compensation

$100,000

02

(b) Journal Entry

Date

Accounts and Explanation

Debit

Credit

July 25, 2021

Common Stock

$100,000

Paid-in Capital in Excess of Par鈥擟ommon Stock

$400,000

Compensation Expense

$400,000

Unearned Compensation

$100,000

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Most popular questions from this chapter

(EPS with Convertible Bonds and Preferred Stock) On January 1, 2017, Crocker Company issued 10-year, \(2,000,000 face value, 6% bonds, at par. Each \)1,000 bond is convertible into 15 shares of Crocker common stock. Crocker鈥檚 net income in 2017 was \(300,000, and its tax rate was 40%. The company had 100,000 shares of common stock outstanding throughout 2017. None of the bonds were converted in 2017.

Instructions

(a) Compute diluted earnings per share for 2017.

(b) Compute diluted earnings per share for 2017, assuming the same facts as above, except that \)1,000,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Crocker common stock.

(EPS: Simple Capital Structure) On January 1, 2017, Lennon Industries had stock outstanding as follows.

6% Cumulative preferred stock, \(100 par value,

issued and outstanding 10,000 shares \)1,000,000

Common stock, \(10 par value, issued and

outstanding 200,000 shares 2,000,000

To acquire the net assets of three smaller companies, Lennon authorized the issuance of an additional 160,000 common shares. The acquisitions took place as shown below.

Date of Acquisition Shares Issued

Company A April 1, 2017 50,000

Company B July 1, 2017 80,000

Company C October 1, 2017 30,000

On May 14, 2017, Lennon realized a \)90,000 (before taxes) gain on discontinued operations.On December 31, 2017, Lennon recorded income of $300,000 from continuing operations.

Instructions

Assuming a 50% tax rate, compute the earnings per share data that should appear on the financial statements of Lennon Industries as of December 31, 2017.

(Conversion of Bonds) Aubrey Inc. issued \(4,000,000 of 10%, 10-year convertible bonds on June 1, 2017, at 98 plus accrued interest. The bonds were dated April 1, 2017, with interest payable April 1 and October 1. Bond discount is amortized semi-annually on a straight-line basis.On April 1, 2018, \)1,500,000 of these bonds were converted into 30,000 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.

(a) Prepare the entry to record the interest expense at October 1, 2017. Assume that accrued interest payable was credited when the bonds were issued. (Round to nearest dollar.)

(b) Prepare the entry(ies) to record the conversion on April 1, 2018. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made

IFRS16-12 Assume the same information in IFRS16-11, except that Angela Corporation converts its convertible bonds on January 1, 2017.

Instructions

(a) Compute the carrying value of the bond payable on January 1, 2017.

(b) Prepare the journal entry to record the conversion on January 1, 2017.

(c) Assume that the bonds were repurchased on January 1, 2017, for \(1,940,000 cash instead of being converted. The net present value of the liability component of the convertible bonds on January 1, 2017, is \)1,900,000. Prepare the journal entry to record the repurchase on January 1, 2017.

(EPS with Complex Capital Structure) Amy Dyken, controller at Fitzgerald Pharmaceutical Industries, a public company, is currently preparing the calculation for basic and diluted earnings per share and the related disclosure for Fitzgerald鈥檚 financial statements. Below is selected financial information for the fiscal year ended June 30, 2017.

FITZGERALD PHARMACEUTICAL INDUSTRIES

SELECTED BALANCE SHEET

INFORMATION

JUNE 30, 2017

Long-term debt

Notes payable, 10% \( 1,000,000

8% convertible bonds payable 5,000,000

10% bonds payable 6,000,000

Total long-term debt \)12,000,000

Shareholders鈥� equity

Preferred stock, 6% cumulative, \(50 par value,

100,000 shares authorized, 25,000 shares issued

and outstanding \) 1,250,000

Common stock, \(1 par, 10,000,000 shares authorized,

1,000,000 shares issued and outstanding 1,000,000

Additional paid-in capital 4,000,000

Retained earnings 6,000,000

Total shareholders鈥� equity \)12,250,000

The following transactions have also occurred at Fitzgerald.

1. Options were granted on July 1, 2016, to purchase 200,000 shares at \(15 per share. Although no options were exercised

during fiscal year 2017, the average price per common share during fiscal year 2017 was \)20 per share.

2. Each bond was issued at face value. The 8% convertible bonds will convert into common stock at 50 shares per \(1,000

bond. The bonds are exercisable after 5 years and were issued in fiscal year 2016.

3. The preferred stock was issued in 2016.

4. There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2017.

5. The 1,000,000 shares of common stock were outstanding for the entire 2017 fiscal year.

6. Net income for fiscal year 2017 was \)1,500,000, and the average income tax rate is 40%.

Instructions

For the fiscal year ended June 30, 2017, calculate the following for Fitzgerald Pharmaceutical Industries.

(a) Basic earnings per share.

(b) Diluted earnings per share.
See all solutions

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