Reference no: EM133007310
The stockholders' equity section of J&B Inc. at the beginning of the current year (2021) contained the following information:
Common stock, $1 par value, authorized 4,000,000 shares,
700,000 shares issued and outstanding $ 700,000
Paid-in capital in excess of par-common stock $13,100,000
Retained earnings $250,000
During 2021, the following transactions occurred:
1. On January 1, J & B Inc. sold to investors 10 year, $10,000,000, 8% convertible bonds issued at 104. The bonds were sold to yield 7.4194% and interest is paid annually on January 1. Each $10,000 bond is convertible into 100 shares of $50 par value common stock. J & B uses the effective interest method to amortize the discount or premium on convertible bonds.
2. On July 1, the company issued 10 year, $1,000,000, 5%, non-convertible bonds at 106. The company also issued with each $1,000 bond two detachable stock purchase warrants, which provided for the purchase of common stock at $19 per share. Shortly after issuance, similar bonds without warrants were selling at 97 and the warrants at $4.50. J & B uses the straight-line method to amortize the discount or premium on non-convertible bonds. Interest is paid annually on July 1 of each year.
3. On August 1, the company granted stock options for 125,000 shares of common stock to company executives. The company, using a fair value option-pricing model, determines that each option is worth $2.40. The option price is $25. The options were to expire at year-end and were considered compensation for the current year.
4. All but 20,000 shares related to the stock-options were exercised at the end of the year. The expiration resulted because one of the executives failed to fulfill an obligation related to the employment contract.
5. On December 31, 2021, half of the bonds were converted to common stock. Interest is paid annually on January 1. Note that the interest on all of the bonds will be paid on January 1, 2022.
6. On December 31, 2021, 40% of the warrants in #2 were exercised and the remaining were outstanding and in good standing.
7. Net Income for J&B, Inc. for the year ended 2021 is $1,780,000. There were no other stock issuances or purchases other than those listed above. The average market price of J & B, Inc.'s stock is $40 per share and the tax rate is 25%.
INSTRUCTIONS:
Problem 1: List journal entries, including accruals, for the current year.