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On March 1, 2010, Ruiz Corporation issued $800,000 of 8%nonconvertible bonds at 104, which are due on February 28, 2030. Inaddition, each $1,000 bond was issued with 25 detachable stockwarrants, each of which entitled the bondholder to purchase for $50one share of Ruiz common stock, par value $25. The bonds withoutthe warrants would normally sell at 95. On March 1, 2010, the fairmarket value of Ruiz's common stock was $40 per share and the fairmarket value of the warrants was $2.00. What amount should Ruizrecord on March 1, 2010 as paid-in capital from stockwarrants?

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Jarrod Robel
Jarrod RobelLv2
28 Sep 2019

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On March 1, 2018, Ron Corporation issued $150,000 of 8%nonconvertible bonds with detachable stock warrants at 104, whichare due on February 28, 2038. Each $1,000 bond was issued with 25detachable stock warrants, each of which entitled the bondholder topurchase for $50 one share of Ron common stock, par value $10. Thebonds without the warrants would normally sell at 96. On March 1,2018, the fair value of Ron’s common stock was $40 per share andthe market value of the warrants was $3.00 per warrant. What amountshould Ron record on March 1, 2018 as paid-in capital from stockwarrants?

1. (TCO A) On July 1, 2010, an interest paymentdate, $60,000 of Parks Co. bonds were converted into 1,200 sharesof Parks Co. common stock, each having a par value of $45 and amarket value of $54. There is $2,400 unamortized discount on thebonds. Using the book value method, Parks would record (Points :5)

no change in paid-incapital in excess of par.
a $3,600 increase in paid-incapital in excess of par.
a $7,200 increase in paid-incapital in excess of par.
a $4,800 increase in paid-incapital in excess of par.


Question 2. 2. (TCO A) On March 1, 2010, RuizCorporation issued $800,000 of 8% nonconvertible bonds at 104,which are due on February 28, 2030. In addition, each $1,000 bondwas issued with 25 detachable stock warrants, each of whichentitled the bondholder to purchase for $50 one share of Ruizcommon stock, par value $25. The bonds without the warrants wouldnormally sell at 95. On March 1, 2010, the fair market value ofRuiz's common stock was $40 per share and the fair market value ofthe warrants was $2.00. What amount should Ruiz record on March 1,2010 as paid-in capital from stock warrants?
(Points : 5)

$28,800

$33,600

$41,600

$40,000

Question 3. 3. (TCO A) On January 1, 2010,Trent Company granted Dick Williams, an employee, an option to buy100 shares of Trent Co. stock for $30 per share, the optionexercisable for 5 years from date of grant. Using a fair valueoption pricing model, total compensation expense is determined tobe $900. Williams exercised his option on September 1, 2010, andsold his 100 shares on December 1, 2010. Quoted market prices ofTrent Co. stock during 2010 were as follows:

January1 $30 per share
September1 $36 per share
December1 $40 per share

The service period is for 2 years, beginning January 1, 2010. As aresult of the option granted to Williams, using the fair valuemethod, Trent should recognize compensation expense for 2010 on itsbooks in the amount of (Points : 5)

$1,000.

$900.

$450.

$0.

Question 4. 4. (TCO A) Wonderful Inc. issued toits existing common stockholders 2000 warrants. Each warrantentitles the stockholder to purchase 3 shares of common stock at aprice of $4 each. The common stock of the company is selling in thestock exchange at $6 each. If Wonderful has 20,000 shares of commonstock outstanding throughout the year and its Net Income is $8,000after paying the preferred dividends, what will be the dilutive EPSof Wonderful incorporation under treasury stock method? Round youranswer to two decimal points. (Points : 5)

$4
$0.40

$0.30

$0.36

Question 5. 5. (TCO A) At December 31, 2011 and2010, Miley Corp. had 180,000 shares of common stock and 10,000shares of 5%, $100 par value cumulative preferred stockoutstanding. No dividends were declared on either the preferred orcommon stock in 2011 or 2010. Net income for 2011 was $400,000. For2011, earnings per common share amounted to (Points : 5)

$2.22.
$1.94.
$1.67.
$1.11.

Bradley-Link’s December 31, 2016, balance sheet included thefollowing items: Long-Term Liabilities ($ in millions) 8.0%convertible bonds, callable at 102 beginning in 2017, due 2020 (netof unamortized discount of $6) [note 8] $144 11.0% registered bondscallable at 105 beginning in 2026, due 2030 (net of unamortizeddiscount of $2) [note 8] 52 Shareholders’ Equity 5 Equity—stockwarrants Bonds (in part) The 8.0% bonds were issued in 2003 at 96.0to yield 10%. Interest is paid semiannually on June 30 and December31. Each $1,000 bond is convertible into 50 shares of the Company’sno par common stock. The 11.0% bonds were issued in 2007 at 103 toyield 10%. Interest is paid semiannually on June 30 and December31. Each $1,000 bond was issued with 50 detachable stock warrants,each of which entitles the holder to purchase one share of theCompany’s no par common stock for $30, beginning 2017. On January3, 2017, when Bradley-Link’s common stock had a market price of $37per share, Bradley-Link called the convertible bonds to forceconversion. 90% were converted; the remainder were acquired at thecall price. When the common stock price reached an all-time high of$42 in December of 2017, 40% of the warrants were exercised.Required: 1. Prepare the journal entries that were recorded wheneach of the two bond issues was originally sold in 2003 and 2007 2.Prepare the journal entry to record (book value method) theconversion of 80% of the convertible bonds in January 2017 and theretirement of the remainder. 3. Assume Bradley-Link inducedconversion by offering $120 cash for each bond converted. Preparethe journal entry to record (book value method) the conversion of90% of the convertible bonds in January 2017. 4. AssumeBradley-Link induced conversion by modifying the conversion ratioto exchange 55 shares for each bond rather than the 50 sharesprovided in the contract. Prepare the journal entry to record (bookvalue method) the conversion of 80% of the convertible bonds inJanuary 2017. 5. Prepare the journal entry to record the exerciseof the warrants in December 2017

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