Q1. Swifty Corporation had 273,000 shares of common stock outstanding on January 1, 2017. On May 1, Swifty issued 33,000 shares.
(a) Compute the weighted-average number of shares outstanding if the 33,000 shares were issued for cash.
(b) Compute the weighted-average number of shares outstanding if the 33,000 shares were issued in a stock dividend.
Q2. On January 1, 2016, when its $30 par value common stock was selling for $80 per share, Oriole Corp. issued $12,300,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the corporation's common stock. The debentures were issued for $13,284,000. The present value of the bond payments at the time of issuance was $10,455,000, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2017, the corporation's $30 par value common stock was split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2018, when the corporation's $15 par value common stock was selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums.
(a) Prepare the entry to record the original issuance of the convertible debentures.
(b) Prepare the entry to record the exercise of the conversion option, using the book value method.
Q3. On November 1, 2017, Waterway Company adopted a stock-option plan that granted options to key executives to purchase 32,400 shares of the company's $10 par value common stock. The options were granted on January 2, 2018, 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 $486,000.
All of the options were exercised during the year 2020: 21,600 on January 3 when the market price was $65, and 10,800 on May 1 when the market price was $75 a share.
Prepare journal entries relating to the stock option plan for the years 2018, 2019, and 2020. Assume that the employee performs services equally in 2018 and 2019.