Answer:
Longard Corp.
The money that Longard Corp. receives is:
= $75 million.
Explanation:
a) Data and Calculations:
Number of shares issued = 5 million
Investment bank underwriter pays per share to Longard Corp = $15
Stock price to the public = $20 per share
Total amount received from the underwriter = $75 million ($15 * 5 million)
b) The calculations show that the investment bank will eventually receive $100 million ($20 * 5 million) from the public offer. It then charges $5 per share (representing a total underwriting fee of $25 million). This is why it remits only $75 million to Longard Corp.
Stock Options
On December 30, 2014, Yang Corporation granted compensatory stock options for 5,000 shares of its $1 par value common stock to certain of its key employees. The options may be exercised after 2 years of employment. Market price of the common stock on that date was $30 per share and the option price was $30 per share. Using a fair value option pricing model, total compensation expense is determined to be $80,000. The options are exercisable beginning January 1, 2017, providing those key employees are still in the employ of the company at the time the options are exercised. The options expire on January 1, 2018.
Instructions:
Prepare the following selected journal entries for the company on the answer sheet (if no entry required, state "no entry").
(1) December 30, 2014.
(2) December 31, 2015.
(3) January 1, 2017, assuming 90% of the options were exercised at that date.
(4) January 1, 2018, for the 10% of the options that expired.
Answer:
Date Account Titles Debit Credit
Dec 30, 14 No entry on Grant Date
Dec 30, 15 Compensation expense $40000
Paid in capital- stock options $40000
Dec 30, 16 Compensation expenses $40000
Paid in capital- stock options $40000
Jan 1, 17 Cash (30*5000*90%) $135000
Paid in capital- stock options $72000
(80000*90%)
Common stock (5000*90%*1) $4500
Paid in capital $202500
Jan 1, 18 Paid in capital- stock options $8000
Paid in capital- expired stock options $8000