E16-17
1. (1) Treasury Stock: Preferred ($53 x 250) 13,250
Cash 13,250
2. Stockholders’ Equity
Contributed capital
Preferred stock, $50 par (5,000 shares
authorized, issued, and outstanding) $250,000
Common stock, $10 par (20,000 shares
E16-17 (continued)
3. Under IFRS, TMP would report a revaluation surplus of $40,000 in its stockholders’
equity. It would also refer to retained earnings as accumulated profits and
losses. Its stockholders’ equity under IFRS would be as follows:
Stockholders’ Equity
Contributed Capital
Preferred stock, $50 par (5,000 shares
authorized, Issued, and outstanding) $250,000
Note A: Accumulated profits and losses are restricted regarding dividends in the
amount of $4,000, the cost of the 200 common treasury shares.
*$115,000 = $95,000 + $30,000 – $10,000
E16-18
1. (1) Treasury Stock ($33 x 1,000) 33,000
Cash 33,000
E16-18 (continued)
1. (continued)
(4) Common Stock ($10 x 100) 1,000
Additional Paid-in Capital on
2. (1) Treasury Stock ($10 x 1,000) 10,000
Additional Paid-in Capital on
(2) Cash 21,000
(3) Cash 9,600
(4) Common Stock, $10 par 1,000
Treasury Stock 1,000
16-24
E16-19
(1) Cash ($15 x 5,000) 75,000
Common Stock, no par 75,000
SOLUTIONS TO PROBLEMS
P16-1
1. Land 108,320
Common Stock, no par (1,000 x $36) 36,000
2. Land 104,000
Common Stock, no par 36,000
3. Cash 99,000
Premium on Bonds Payable 1,480*
Bonds Payable 50,000
4. Cash 99,000
Bonds Payable 50,000
16-26
P16-1 (continued)
4. (continued)
5. Cash 99,000
Premium on Bonds Payable
6. Preferred Stock, $100 par 650,000
Additional Paid-in Capital on Preferred Stock 65,000
7. Preferred Stock, $100 par 700,000
Additional Paid-in Capital on
Preferred Stock ($10 x 7,000) 70,000
8. Preferred Stock, $100 par 200,000
Additional Paid-in Capital on
16-27
P16-1 (continued)
8. (continued)
Preferred Stock, $100 par 500,000
Reasoning: Same explanation as for journal entry 7.
*Common stock is recorded at the book value of the converted preferred stock.
P16-2
1. Patent 165,500
Discount on Bonds Payable
2. Cash 96,000
Common Stock, $10 stated value 20,000
Additional Paid-in Capital on Common Stock 22,240*
16-28
P16-2 (continued)
2. (continued)
3. Land 57,000
Common Stock, $10 stated value 10,000
Reasoning: Since the values of the land and common stock are known, the value of
the common stock is subtracted from the value of the land to determine the value
assigned to the preferred stock.
4. Preferred Stock, $100 par 600,000
Additional Paid-in Capital on
5. Preferred Stock, $100 par 400,000
Additional Paid-in Capital on Preferred Stock 32,000
P16-2 (continued)
5. (continued)
*Common stock is recorded at the book value of the converted preferred stock.
An argument can be made for recording the conversion at the call price
6. Memorandum entry: The board of directors split the common stock two for one,
increasing the issued stock from 40,000 to 80,000 shares. The stated value of the stock
7. Common Stock, $10 stated value (40,000 x $10) 400,000
Common Stock, $4 stated value (80,000 x $4) 320,000
P16-3
1. 2010
Aug. 3 Cash (1,000 x $104 x 0.10) 10,400
Subscriptions Receivable
P16-3 (continued)
1. (continued)
Nov. 2 Cash (80 x $105) 8,400
Preferred Stock, $100 par 8,000
2. 2010
Aug. 3 Cash (9,000 x $22 x 0.10) 19,800
Subscriptions Receivable
($198,000 – $19,800) 178,200
P16-4
July 3 Cash ($3 x 10,000) 30,000
Subscriptions Receivable (10,000 x $10) 100,000
P16-4 (continued)
Oct. 3 Common Stock Subscribed 57,000
Common Stock, $6 stated value 57,000
P16-5
1. 2010
Mar. 2 Memorandum entry: To extend the preemptive right to common
2.a. 2010
Mar. 5 Cash ($83 x 10,000) 830,000
Preferred Stock, $50 par 500,000
Additional Paid-in Capital
16-32
P16-5 (continued)
2. (continued)
b. Mar. 19 Cash ($18 x 6,000) 108,000
c. Apr. 2 Cash [$23 x (120,000 ) 4)] 690,000
Common Stock, $10 par 300,000
P16-6
1. 2010 2011 2012
Estimated (actual) total
compensation cost $462,983a $477,757b $486,000c
Fraction of service period expired 1/3 2/3 3/3
16-33
P16-6 (continued)
2. 2010
Jan. 1 Memorandum entry: On January 1, 2010, the company granted
compensatory share options to 60 key employees. The plan allows each
employee to exercise 500 options to acquire the same number of shares
of the company’s $10 par common stock at an exercise price of $55 per
share. The options vest at the end of 3 years. The estimated fair value of
the options expected to be exercised is $462,983.
3. Stockholders’ Equity (in part; 12/31/2011)
P16-7
1. 2010 2011 2012
Estimated (actual) total
compensation cost $41,527a $58,516b $95,875c
Fraction of service period expired 1/3 2/3 3/3
P16-7 (continued)
2. 2010
Jan. 1 Memorandum entry: On January 1, 2010, the company granted
performance-based compensatory share options to 70 key employees.
The plan allows each employee to exercise a maximum of 100 options to
acquire the same number of shares of the company’s $5 par common
stock at an exercise price of $50 per share. The options vest at the end of
3. Stockholders’ Equity (in part; 12/31/2011)
Contributed Capital
Common stock option warrants $39,011
4. The actual value of the vested stock options on December 31, 2012 is more than 60%
P16-8
1. 2010 2011 2012
Estimated (actual) total
compensation cost $144,189a $153,590b $210,800c
Fraction of service period expired 1/3 2/3 3/3
2. 2010
Jan. 1 Memorandum entry: On January 1, 2010, the company granted
performance-based compensatory share options to 80 key employees.
The plan allows each employee to exercise a maximum of 200 options to
acquire the same number of shares of the company’s $10 par common
stock at an exercise price of $45 per share. The options vest at the end of
3 years. The number of options granted is based on the increase in sales
over the 3-year service period. The estimated fair value of the options
expected to be exercised is $144,189.
16-36
P16-8 (continued)
2. (continued)
3. Stockholders’ Equity (in part; 12/31/2011)
Contributed Capital
Common stock option warrants $102,393
4. The number of share options that the executives are granted is based on increase(s) in
the company’s sales. Management may have manipulated the increases in sales,
P16-9
1.
Date
Fair
Value
per
SAR
Estimated
Total
Compen-
sation
Costa
Percent
Accruedb
Total
Compen-
sation
Expense
to Datec
Accrued
Compen-
sation
Expense
to Dated
Yearly
Compen-
sation
Expensee
12/31/09
$4.00
$40,000
25%
$10,000
—
$10,000
2. 2009
Dec. 31 Compensation Expense 10,000
P16-9 (continued)
2. (continued)
2011
Dec. 31 Compensation Expense 8,000
SAR Compensation Payable 8,000
P16-10
1. (1) The legal capital is $374,000 ($190,000 + $184,000)
(3) The number of shares of common stock issued is 8,000 shares ($184,000 ) $23)
2. 2010
Mar. 2 Cash ($10 x 400) 4,000
Subscriptions Receivable ($112 x 400) 44,800
P16-10 (continued)
2. (continued)
May 4 Preferred Stock Subscribed (50 x $100) 5,000
Premium on Preferred Stock (50 x $22) 1,100
Nov. 16 Cash ($38 x 500) 19,000
Treasury Stock 18,000
Additional Paid-in Capital
from Treasury Stock 1,000
16-39
P16-10 (continued)
3. Contributed Capital
8% Preferred stock, $100 par (6,000 shares
authorized, 2,350 shares issued and
outstanding) $235,000
P16-11
1. 2010
Jan. 4 Memo entry: On this date a compensatory share option plan was
granted to key executives. The options vest after a 3-year service period is
completed. The estimated fair value of the options expected to be
exercised is $81,000.
16-40
P16-11 (continued)
1. (continued)
Sept. 21 Building 49,850
Cash 9,000
Common Stock, $10 stated value 8,000
Additional Paid-in Capital on
Common Stock ($9 x 800) 7,200
Dec. 14 Cash ($20.50 x 900) 18,450
Treasury Stock 17,550
Additional Paid-in Capital from
Treasury Stock 900