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Issuance of Bonds with Detachable Warrants
E16-8(Issuance of Bonds with Detachable Warrants) On September 1, 2007, Sands Company sold at 104 (plus accrued interest) 4,000 of its 9%, 10-year, $1,000 face value, nonconvertible bonds with detachable stock warrants. Each bond carried two detachable warrants. Each warrant was for one share of common stock at a specified option price of $15 per share. Shortly after issuance, the warrants were quoted on the market for $3 each. No market value can be determined for the Sands Company bonds. Interest is payable on December 1 and June 1. Bond issue costs of $30,000 were incurred.
Instructions
Prepare in general journal format the entry to record the issuance of the bonds. (AICPA adapted)
E16-10(Issuance and Exercise of Stock Options) On November 1, 2007, Columbo Company adopted a stock option plan that granted options to key executives to purchase 30,000 shares of the company’s $10 par value common stock. The options were granted on January 2, 2008, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company. The options expired 6 years from date of grant. The option price was set at $40, and the fair value option pricing model determines the total compensation expense to be $450,000.
All of the options were exercised during the year 2010: 20,000 on January 3 when the market price was $67, and 10,000 on May 1 when the market price was $77 a share.
Instructions
Prepare journal entries relating to the stock option plan for the years 2008, 2009, and 2010. Assume that the employee performs services equally in 2008 and 2009.