The company issued 101,000 rights to the shareholders. Ten rights are needed to buy one share at $32 and the rights are void after 30 days. The shares' market price at this time was $34 per share. 2. The company sold the public a $208,000, 10% bond issue at par. The company also issued with each $100 bond one detachable stock purchase warrant, which provided for the purchase of common shares at $30 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $8. 3. All but 10,000 of the rights issued in item 1 were exercised in 30 days. 4. At the end of the year, 80% of the warrants in item 2 had been exercised, and the remaining were outstanding and in good standing. 5. During the current year, the company granted stock options for 5,000 common shares to company executives. The company, using an options pricing model, determined that each option is worth $10. The exercise or strike price is $30. The options were to expire at year end and were considered compensation for the current year. 6. All but 1,000 shares related to the stock option plan were exercised by year end. The expiration resulted because one of the executives failed to fulfill an obligation related to the employment contract. Prepare general journal entries for the current year to record each of the transactions. Assume the company follows IFRS. (Credit account titles are automatically indented when the 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.) No. Account Titles and Explanation Debit Credit
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
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The shareholders' equity section of Oriole Inc. at the beginning of the current year is as follows:
| Common shares, 1,000,000 shares authorized, 300,000 shares issued and outstanding | $3,600,000 | ||
| 570,000 |
During the current year, the following transactions occurred:
| 1. | The company issued 101,000 rights to the shareholders. Ten rights are needed to buy one share at $32 and the rights are void after 30 days. The shares' market price at this time was $34 per share. | |
| 2. | The company sold the public a $208,000, 10% bond issue at par. The company also issued with each $100 bond one detachable stock purchase warrant, which provided for the purchase of common shares at $30 per share. Shortly after issuance, similar bonds without warrants were selling at 96 and the warrants at $8. | |
| 3. | All but 10,000 of the rights issued in item 1 were exercised in 30 days. | |
| 4. | At the end of the year, 80% of the warrants in item 2 had been exercised, and the remaining were outstanding and in good standing. | |
| 5. | During the current year, the company granted stock options for 5,000 common shares to company executives. The company, using an options pricing model, determined that each option is worth $10. The exercise or strike price is $30. The options were to expire at year end and were considered compensation for the current year. | |
| 6. | All but 1,000 shares related to the stock option plan were exercised by year end. The expiration resulted because one of the executives failed to fulfill an obligation related to the employment contract. |
Prepare general journal entries for the current year to record each of the transactions. Assume the company follows IFRS. (Credit account titles are automatically indented when the 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.)
|
No. |
Account Titles and Explanation |
Debit |
Credit |
| 1. | |||
| 2. | |||
| 3. | |||
| 4. | |||
| 5. | |||
| 6. | For options exercised: | ||
| For options lapsed: | |||
eTextbook and Media
List of Accounts
Prepare the shareholders’ equity section of the SFP at the end of the current year. Assume that retained earnings at the end of the current year is $750,000. (Enter account name only and do not provide descriptive information.)
| Oriole Inc. (Partial) |
||||
| Shareholders’ Equity: | ||||
| Long-term InvestmentsLong-term LiabilitiesCurrent LiabilitiesShare CapitalCurrent AssetsIntangible Assets: | ||||
| $ | ||||
| $ | ||||
| Total Shareholders’ Equity | $ |
eTextbook and Media
List of Accounts
Assume instead that the executives in items 5 and 6 had fulfilled the employment contract, and that the stock options expired because the share price was lower than the exercise or strike price. Would it be incorrect to have recorded compensation expense related to the expired stock options, during the service period?
NoYes
Would the
YesNo
Prepare the journal entry to record the expiration. (Credit account titles are automatically indented when the 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.)
|
Account Titles and Explanation |
Debit |
Credit |
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