Accounting for Various Capital Stock Transactions
The stockholders’ equity section of Webster Inc. showed the following data on December 31, 2007: common stock, $3 par, 300,000 shares authorized, 250,000 shares issued and outstanding, $750,000; paid in capital in excess of par, $7,050,000; additional paid in capital from stock options, $150,000; retained earnings, $480,000. The stock options were granted to key executives and provided them the right to acquire 30,000 shares of common stock at $35 per share. The options had a value of $5 each on the grant date. The following transactions occurred during 2008.
Mar. 31 Key executives exercised 4,500 options outstanding at December 31, 2007. The market price per share was $44 at this time.
Apr. 1 The company issued bonds of $2,000,000 at par, giving each $1,000 bond a detachable warrant enabling the holder to purchase two shares of stock at $40 each for a 1 year period. Market values immediately following issuance of the bonds were $4 per warrant and $998 per $1,000 bond without the warrant.
June 30 The company issued rights to stockholders (one right on each share, exercisable within a 30 day period) permitting holders to acquire one share at $40 with every 10 rights submitted. Shares were selling for $43 at this time. All but 6,000 rights were exercised on July 31, and the additional stock was issued.
Sept. 30 All warrants issued with the bonds on April 1 were exercised.
Nov. 30 The market price per share Dr. opped to $33, and options came due. Because the market price was below the option price, no remaining options were exercised.
Instructions:
1. Provide entries to record these transactions.
2. Prepare the stockholders’ equity section of the balance sheet as of December 31, 2008 (assume net income of $210,000 for 2008).