Chapter 16: 13Q (page 874)
Over what period of time should compensation cost be allocated?
The period during which an employee is expected to offer support in return for stock-based compensation. It very well may be unequivocal, understood, or determined, contingent upon the conditions of the award.
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(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
(Conversion of Bonds) Vargo Company has bonds payable outstanding in the amount of \(500,000, and the Premium on Bonds Payable account has a balance of \)7,500. Each \(1,000 bond is convertible into 20 shares of preferred stock of parvalue of \)50 per share. All bonds are converted into preferred stock.
CA16-3 WRITING (Stock Warrants—Various Types) For various reasons a corporation may issue warrants to purchase shares of its common stock at specified prices that, depending on the circumstances, may be less than, equal to, or greater than the current market price. For example, warrants may be issued:
1. To existing stockholders on a pro rata basis.
2. To certain key employees under an incentive stock-option plan.
3. To purchasers of the corporation’s bonds.
Instructions
For each of the three examples of how stock warrants are used:
(a) Explain why they are used.
(b) Discuss the significance of the price (or prices) at which the warrants are issued (or granted) in relation to (1) the current market price of the company’s stock, and (2) the length of time over which they can be exercised.
(c) Describe the information that should be disclosed in financial statements, or notes thereto, that are prepared when stock warrants are outstanding in the hands of the three groups listed above
(Conversion of Bonds) The December 31, 2017, balance sheet of Kepler Corp. is as follows.10% callable, convertible bonds payable (semiannual interest dates April 30 and October 31; convertible into 6 shares of \(25 par value common stock per \)1,000 of bond principal; maturity date April 30, 2023) \(500,000Discount on bonds payable 10,240 \)489,760On March 5, 2018, Kepler Corp. called all of the bonds as of April 30 for the principal plus interest through April 30. By April 30, all bondholders had exercised their conversion to common stock as of the interest payment date. Consequently, on April 30, Kepler Corp. paid the semiannual interest and issued shares of common stock for the bonds. The discount is amortized on a straight-line basis. Kepler uses book value method.
Prepare the entry(the ies) to record the interest expense and conversion on April 30, 2018. Reversing entries were made on January 1, 2018. (Round to the nearest dollar.)
(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’s 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’ equity
Preferred stock, 6% cumulative, \(50 par value,
100,000 shares authorized, 25,000 shares issued
and outstanding \) 1,250,000
Common stock, \(1 par, 10,000,000 shares authorized,
1,000,000 shares issued and outstanding 1,000,000
Additional paid-in capital 4,000,000
Retained earnings 6,000,000
Total shareholders’ equity \)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.
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