
1.
Prepare a
1.

Explanation of Solution
Stock Warrants: Stock warrants are the rights issued to the shareholders of a company to buy additional or unissued shares at a pre-determined exercise price during certain period of time.
Prepare an entry to record the issuance of common stock warrants on March 2, 2019:
Memorandum entry: On March 2, 2019, the company issued 200,000 stock warrants to the existing shareholders. The right allows each shareholder to exercise 4 stock warrants to acquire one share of company’s common stock at an exercise price of $23 per share before the rights expire on April 6, 2019.
2 (a)
Prepare the journal entry to record the sale of
2 (a)

Explanation of Solution
Preferred stock: The stock that provides a fixed amount of return (dividend) to its stockholder before paying dividends to common stockholders is referred as preferred stock.
Prepare the journal entry to record the sale of preferred stock with detachable warrants on March 5, 2019:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) |
March 05 | Cash | 830,000 | ||
Preferred Stock | 500,000 | |||
Additional Paid-in Capital on Preferred Stock | 270,714 | |||
Paid-in Capital–Stock Warrants | 59,286 | |||
(To record issuance of preferred stock with detachable warrants) |
Table (1)
To record issuance of preferred stock with detachable warrants:
- Cash is an asset account. The amount is increased because cash is received due to stock issue; therefore, debit Cash account with $830,000.
- Preferred Stock is a
stockholders’ equity account and the amount has increased due to issuance of preferred stock. Therefore, credit Preferred Stock account with $500,000. - Additional Paid-in Capital on Preferred Stock is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Additional Paid-in Capital on Preferred Stock account with $270,714.
- Paid-in Capital–Common Stock Warrants is a stockholders’ equity account and the contributed capital has increased due to issue of warrants of common shares to preferred shareholders. Therefore, credit Paid-in Capital–Common Stock Warrants account with $59,286.
Working note: Compute the allocation of cash received:
Particulars | Calculations | Amount ($) |
Preferred stock | $770,714 | |
Common warrants | $59,286 | |
$830,000 |
Table (2)
2 (b)
Prepare a journal entry to record the exercise of stock warrants attached to preferred stock.
2 (b)

Explanation of Solution
Prepare a journal entry to record the exercise of stock warrants attached to preferred stock:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) |
March 19 | Cash | $108,000 | ||
Paid-in Capital–Stock Warrants | $35,580 | |||
Common Stock | $60,000 | |||
Additional Paid-in Capital on common stock | $83,580 | |||
(To record issuance of common stock when detachable warrants are exercised) |
Table (3)
To record issuance of common stock when detachable warrants are exercised:
- Cash is an asset account. The amount is increased because cash is received due to stock issue; therefore, debit Cash account with $108,000.
- Paid-in Capital–Common Stock Warrants is a stockholders’ equity account and the contributed capital has decreased due to exercise of warrants of common shares to preferred shareholders. Therefore, debit Paid-in Capital–Common Stock Warrants account with $35,580.
- Common Stock is a stockholders’ equity account and the amount has increased due to issuance of common stock. Therefore, credit Common Stock account with $60,000.
- Additional Paid-in Capital on Common Stock is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Additional Paid-in Capital on Common Stock account with $83,580.
2 (c)
Prepare a journal entry to record the exercise of stock warrants issues in conjunction with the pre-emptive right.
2 (c)

Explanation of Solution
Prepare a journal entry to record the exercise of stock warrants issues in conjunction with the pre-emptive right:
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) |
April 02 | Cash | $690,000 | ||
Common Stock | $300,000 | |||
Additional Paid-in Capital on common stock | $390,000 | |||
(To record issuance of common stock when stock warrants are exercised) |
Table (4)
To record issuance of common stock when stock warrants are exercised:
- Cash is an asset account. The amount is increased because cash is received due to stock issue; therefore, debit Cash account with $690,000.
- Common Stock is a stockholders’ equity account and the amount has increased due to issuance of common stock. Therefore, credit Common Stock account with $300,000.
- Additional Paid-in Capital on Common Stock is a stockholders’ equity account and the amount has increased due to increase in capital. Therefore, credit Additional Paid-in Capital on Common Stock account with $390,000.
2 (d)
Prepare the journal entry to record the 4,000 stock warrants related to the preferred stock and the 80,000 stock warrants related to the pre-emptive right expire on April 6, 2019.
2 (d)

Explanation of Solution
Date | Account Titles and Explanation | Post Ref. | Debit ($) | Credit ($) |
April 02 | Paid-in Capital–Stock Warrant | $23,706 | ||
Additional Paid-in Capital from expired warrants | $23,706 | |||
(To record expiry of detachable warrants) |
Table (5)
To record expiry of detachable warrants:
- Paid-in Capital–Common Stock Warrants is a stockholders’ equity account and the contributed capital has decreased due to expired detachable warrants. Therefore, debit Paid-in Capital–Common Stock Warrants account with $23,706.
- Additional Paid-in Capital from Expired Warrants is a stockholders’ equity account and the contributed capital has increased due to expired warrants. Therefore, credit Additional Paid-in Capital from Expired Warrants account with $23,706.
Prepare memorandum entry to disclose the expiry of stock warrants on April 6, 2016 in the books of Corporation NE.
Memorandum entry: On April 6, 2019, 80,000 stock warrants out of 200,000 stock warrants issued to existing shareholders (pre-emptive rights) on March 2, 2019, expire.
Want to see more full solutions like this?
Chapter 15 Solutions
Intermediate Accounting: Reporting and Analysis - With Access
- Blockbuster Co is building a new state of the art Cineplex at a cost of $3,500,000. They received a capital investment of $1,500,000. The remainder of funds will have to be borrowed so they decided to issue bonds. They have issued 10.5%, 5-year bonds. These bonds were issued on January 1st, 2020, and pay semi-annual interest on July 1st and January 1st. The bonds yield 10%. The year-end is December 31st. Requirements: (Show all workings) I. Calculate the proceeds from the sale of the bond. Clearly, show the II. III. IV. amount of the premium or discount and state two reasons, which support the premium or discount calculated. Prepare a bond amortization schedule for the bond's life. Prepare all the journal entries for 2020, 2023 & 2025. Assume that on July 1 2023, Blockbuster Co. retires the bond at a cost of 1,065,000 plus accrued interest, if applicable. Prepare the journal entry to record this retirement.arrow_forwardWhat is the net income during year 2 on these accounting question?arrow_forwardSwifty Corporation received a check for $18240 on July 1 which represents a 6 month advance payment of rent on a building it rents to a client. Unearned Rent Revenue was credited for the full $18240. Financial statements will be prepared on July 31. Swifty should make the following adjusting entry on July 31: debit Unearned Rent Revenue, $18240; credit Rent Revenue, $18240. debit Cash, $18240; credit Rent Revenue, $18240. debit Rent Revenue, $3040; credit Unearned Rent Revenue, $3040. debit Unearned Rent Revenue, $3040; credit Rent Revenue, $3040.arrow_forward
- The policy at Kingbird, Inc. is to record all office supplies as an asset at the time of purchase. On the last day of the accounting period, there are $1250 of office supplies on hand and the balance in the Supplies account is $3990. The adjusting journal entry would include A. a credit to Supplies for $1250. B, a debit to Supplies Expense for $1250. C. a credit to Supplies Expense for $2740. D. a credit to Supplies for $2740.arrow_forwardYou are the partner-in-charge of a large metropolitan office of a regional public accounting firm. Two members of your professional staff have come to you to discuss problems that may affect the firm's independence. Neither of these situations has been specifically answered by the AICPA Professional Ethics Division. Case 2: Mary Reed, a new staff auditor with the firm, has recently separated from her husband. Mary has filed for divorce, but the divorce cannot become final for at least five months. The property settlement is being bitterly contested. Mary's husband has always resented her professional career and has just used community property to acquire one share of common stock in each of the publicly owned companies audited by the office in which Mary works. 1. What arguments would indicating that the firm's independence has not been impaired? 2. What arguments would indicating that the firm's independence has been impaired? 3. Which argument from part (a) or part (b) is the most…arrow_forwardThe unadjusted trial balance for Blue Spruce Corp. appears as follows: Blue Spruce Corp. Trial Balance December 31, 2025 Cash Accounts Receivable Prepaid Insurance Supplies Equipment $370 647 102 223 4960 Accumulated Depreciation - Equipment $740 Accounts Payable 476 Common Stock 1490 Retained Earnings 1740 Service Revenue 3716 Salaries and Wages Expense 1240 Rent Expense 620 $8162 $8162 If on December 31, 2025, the expired prepaid insurance amounted to $25, the adjusting entry would include a debit to Prepaid Insurance for $77. debit to Prepaid Insurance for $25. O debit to Insurance Expense for $25. ○ credit to Prepaid Insurance for $77.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage LearningExcel Applications for Accounting PrinciplesAccountingISBN:9781111581565Author:Gaylord N. SmithPublisher:Cengage LearningEBK CONTEMPORARY FINANCIAL MANAGEMENTFinanceISBN:9781337514835Author:MOYERPublisher:CENGAGE LEARNING - CONSIGNMENT


