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P16-1 (Entries for Various Dilutive Securities) The stockholders' equity section of Martino Inc. at the beginning of the current year appears below.

Common stock, authorized 1,000,000 shares, 300,000 shares issued and outstanding $3,600,000

Retained earnings 570,000

During the current year the following transactions occurred.

1. The company issued to the stockholders 100,000 rights. Ten rights are needed to buy one share of stock at $32. The rights were void after 30 days. The market price of the stock at this time was $34 per share.

2. The company sold to the public a $200,000, 10% bond issue at $104. The company also issued with each $100 bond one detachable stock purchase warrant, which provided for the purchase of common stock 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 (1) were exercised in 30 days.

4. At the end of the year, 80% of the warrants in (2) had been exercised, and the remaining were outstanding and in good standing.

5. During the current year, the company granted stock options for 10,000 shares of common stock to company executives. The company using a fair value option pricing model determines that each option is worth $10. The option 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.

Instructions

a) Prepare general journal entries for the current year to record the transactions listed above. Assume company follows IFRS.

b) Prepare the stockholders' equity section of the balance sheet at the end of the current year. Assume that retained earnings at the end of the current year is $750,000.

c) Assume instead that the executives in item 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? why or why not? would the journal entry to record the expiration be any different than the journal entry for item 6 recorded in part (a)? if so, prepare the journal entry.

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