On January 1, 2016, Cullumber Company issued 10-year, $104,000 face value, 6% bonds at par (interest payable annually on January 1). Each $1,000 bond is convertible into 32 shares of Cullumber $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2017. Cullumber also has adopted a stock-option plan that granted options to key executives to purchase 6,000 shares of the company’s common stock. The options were granted on January 2, 2016, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company (the service period is 2 years). The options expired 6 years from the date of grant. The option price was set at $5, and the fair value option-pricing model determines the total compensation expense to be $23,000. All of the options were exercised during the year 2018: 3,000 on January 3 when the market price was $7, and 1,000 on May 1 when the market price was $8 a share. (Ignore all tax effects.)
On January 1, 2016, Cullumber Company issued 10-year, $104,000 face value, 6% bonds at par (interest payable annually on January 1). Each $1,000 bond is convertible into 32 shares of Cullumber $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2017. Cullumber also has adopted a stock-option plan that granted options to key executives to purchase 6,000 shares of the company’s common stock. The options were granted on January 2, 2016, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company (the service period is 2 years). The options expired 6 years from the date of grant. The option price was set at $5, and the fair value option-pricing model determines the total compensation expense to be $23,000. All of the options were exercised during the year 2018: 3,000 on January 3 when the market price was $7, and 1,000 on May 1 when the market price was $8 a share. (Ignore all tax effects.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Practice Problem 16-01 (Part Level Submission)
On January 1, 2016, Cullumber Company issued 10-year, $104,000 face value, 6% bonds at par (interest payable annually on January 1). Each $1,000 bond is convertible into 32 shares of Cullumber $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock ) outstanding throughout its life. None of the bonds have been converted as of the end of 2017. Cullumber also has adopted a stock-option plan that granted options to key executives to purchase 6,000 shares of the company’s common stock. The options were granted on January 2, 2016, and were exercisable 2 years after the date of grant if the grantee was still an employee of the company (the service period is 2 years). The options expired 6 years from the date of grant. The option price was set at $5, and the fair value option-pricing model determines the total compensation expense to be $23,000. All of the options were exercised during the year 2018: 3,000 on January 3 when the market price was $7, and 1,000 on May 1 when the market price was $8 a share. (Ignore all tax effects.)
Transcribed Image Text:Prepare the journal entry to record interest expense and compensation expense in 2017. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and
enter 0 for the amounts.)
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2017
Interest Expense
6240
Interest Payable
6240
(To record interest expense for 2017)
Compensation Expense
23000
Paid-in Capital-Stock O
23000
(To record compensation expense for 2017)
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Expert Solution
Step 1 Introduction
Journal entry: Journal is a book of prime entry or a book of original entry in which transactions are first recorded in chronological order. The chronological means that the entry is recorded in the order or sequence they are entered in the books.
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