ACY4001 Advanced Accounting ǀ

2019-20 Semester 2

Individual Assignment 3
Chapter 16-Part 1 Dilutive Securities

IA16.1 The equity section of Martino AG at the beginning of the current year
appears below.

Share capital—ordinary, €10 par value, authorized 1,000,000 €3,000,000

shares, 300,000 shares issued and outstanding
Share premium—ordinary 600,000
Retained earnings 570,000

During the current year, the following transactions occurred.

1. The company issued to its shareholders 100,000 rights to purchase its

shares. Ten rights are needed to buy one share at €32. The rights were void
after 30 days. The market price of the shares 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 one detachable warrant with each €100 bond. The
warrant was for the purchase of 2,000 ordinary shares at €30 per share. The
fair value of the bonds without the warrants was €192,000.

3. All but 5,000 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 10,000 share options for
10,000 ordinary shares to its 10 executives. Using a fair value option-pricing
model, the company determines that each option is worth €10. The option price
is €30. The options were to expire at the year-end and were considered
compensation for the current year.

6. All but 1,000 shares related to the share-option plan were exercised by the
year-end. The expiration resulted because one of the executives failed to fulfill
an obligation related to the employment contract.

Instruction

Prepare general journal entries for the current year to record the transactions
listed above.