Question

The stockholders’ equity section of Martino Inc. at the beginning of the current year appears below.

Common stock, $10 par value, authorized 1,000,000 shares,
300,000 shares issued and outstanding ………………………………………….. $3,000,000
Paid-in capital in excess of par ………………………………………………………… 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 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 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 out-standing 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 and obligation related to the employment contract.
Instructions:
(a) Prepare general journal entries for the current year to record the transactions listed above.
(b) Prepare the stockholders’ equity section for the balance sheet at the end of the current year. Assume that the retained earnings balance at the end of the current year is $750,000.

Answer 1

Net profit from stock transactions is calculated by subtracting the total purchase price and the transaction fee from the total selling price. Examples include calculating net profits for transactions involving Nike, Panda Express, and Wal Mart stocks.

Step-by-step explanation:

Calculating the net profit from stock transactions involves determining the difference between the selling price and the purchase price, factoring in the cost per transaction. To calculate the net profit, you subtract both the initial investment and the transaction cost from the total selling amount.

Example Calculations:

1. For 1000 shares of Nike bought at $24.50 and sold at $39.75 with a $9.99 transaction fee, you calculate net profit as follows:

   Total selling price = 1000 shares × $39.75/share = $39,750

   Total purchase price = 1000 shares × $24.50/share = $24,500

   Net profit = (Total selling price) - (Total purchase price + Cost per transaction)

   Net profit for Nike = $39,750 - ($24,500 + $9.99) = $15,240.01

2. For 800 shares of Panda Express bought at $13.50 and sold at $23.25 with a $10 transaction fee, you calculate net profit as follows:

   Net profit for Panda Express = (800 shares × $23.25) - (800 shares × $13.50 + $10) = $7,590

3. For 1200 shares of Wal Mart bought at $35.50 and sold at $58.75 with a $12.99 transaction fee:

   Net profit for Wal Mart = (1200 shares × $58.75) - (1200 shares × $35.50 + $12.99) = $27,605.01

Understanding Capital Gains:

It is important to understand that the increase in the value of the stock between when it is bought and sold is referred to as a capital gain. This gain, minus any fees or costs, represents the net profit from the stock transaction.