Journal Entries

Question 1

On January 1, Year 1, Stopaz Co. issued 8%, five-year bonds with a face value of $200,000. The bonds pay interest semiannually on June 30 and December 31 of each year. The bonds were issued when the market interest rate was 4% and the bond proceeds were $235,931.

Answer 1

JE 1/1/Yr 1:
Dr Cash 235,931
Cr Premium 35,931
Cr Bonds Pay 200,000

JE 6/30 Yr 1:
Dr Int Exp 4,719 [235,931 x .04) x 6/12]
Cr Amort. Premium 3,281
Cr Cash 8,000 [(200,000 x .08)/2]

Cash Int Amort CV
235,931
8,000 4719 3281 232,650
8,000 4653 3347 229,303

Question 2

ABC decided to let 10 key employees each buy 10,000 shares of ABC stock as additional compensation. Starting on January 1, 2018, the employees could purchase the shares at $8 each, and when the market value of the stock was $10 per share. The stock has a par value of $5 per share. Using the Black Scholes model, the fair value of the options at the grant date is determined to be $6 per share. The options vest on December 31, 2020, a service period of 3 years.

Answer 2

JE 2018:
Dr Compensation expense $200,000
Cr APIC $200,000
(100k shares x $6)/3yrs

JE: On January 1st, 2020, 2 of these employees quit.

Dr Compensation expense $80,000
Cr APIC $80,000

in 2020 Comp exp is 400K. if 2 quit then the total should be 480k (8 x 10,000 shares x $6)

JE: 1/31/2021, 4 of the employees exercised the options
when the market price of the stock was $20.

Dr Cash $320,000 (4 x 10,000 shares x $8)
Dr APIC $240,000 (4 x 10,000 shares x $6)
Cr Common stock $200,000 (4 x 10,000 x $5)
Cr Additional paid in capital $360,000