During the 20X6 fiscal year, Sterling engaged in several shareholders' equity and financing transactions. The following are the various transactions that have occurred in the year:

1. On January 1, 20X3, Sterling granted stock options to senior executives that enable them to purchase 80,000 shares. The exercise price was $85 per share, which was the same as the market price on the day the options were granted. The options vest three years after their grant date; employees who leave prior to that date forfeit the options. All of the executives who hold the options still remain with the company. Using an options pricing model, the fair value of the options was determined to be $180,000. All of the options expire at the end of 20X6; none were exercised during 20X5. The estimated forfeiture rate at the end of the year is 0%. The option offering is referred to as ESOP (employee stock option plan) plan 20X3.

2. On March 1, 20X6, 15,000 of the options issued on January 1, 20X3, were exercised; the shares were trading at $112 per share at that time. On October 1, 20X6, a further 5,000 options issued on January 1, 20X3, were exercised. The shares were trading at $127 per share on October 1. The cash received was credited to the "common shares ESOP plan 20X3" account. (Hint: Common shares ESOP plan 20X3 needs to be closed as if it were a contributed surplus account.)

3. This is the second time the company has offered a stock option program to its senior executives. The board of directors and the compensation committee were surprised that only 20,000 of the 80,000 options were exercised. Remaining options expired but there were no entries made for these expired options. In the previous offering (known as ESOP plan 20X1), 50,000 of the available options were exercised before they expired at the end of 20X4.

4. On April 1, 20X5, Sterling granted 100 stock appreciation rights (SARs) each to 252 employees in middle management. Employees who remain with the company for three years are entitled to exercise the SARs on April 1, 20X8. On April 1, 20X5, the benchmark price of the SARs (the market value of the shares) was $90. At the end of 20X5, it was estimated that 65% of the 252 employees will qualify to exercise the SARs. On December 31, 20X6, it was estimated that 60% of the 252 employees will qualify to exercise the SARs.

Date Fair value of SARs Market value of shares

April 1, 20X5 Not required $90.00

December 31, 20X5 $23.00 $110.00

December 31, 20X6 $26.45 $130.00

5. In January 20X6, Sterling issued $2,000,000 of 20-year, 7%, convertible bonds that pay interest annually on December 31. The bonds were issued when the market rate was 7.5%. Bond issuance costs were $231,000. 15 years after 20X6, the bonds can be converted to ordinary shares at the rate of four $100 bonds for two ordinary shares. The bonds sold for $2,204,771.

The sale of the bonds was recorded in Sterling's accounting records as follows:

DR Cash 2,204,771

CR Convertible bonds payable 2,204,771

DR Bond transaction expenses 231,000

CR Cash 231,000

Interest payments are due on December 31. Due to a computer problem, the December 31, 20X6, payments were not made.

*Required:

Provide the journal entries for each of the above issues. Provide a bonds payable amortization table, a stock appreciation rights worksheet, a convertible bonds payable amortization table, and any other working papers necessary to support the journal entries:

Additional information:

Cash 1,642,301

Accounts receivable trade 1,250,000

Allowance for doubtful accounts 18,750

Prepaid insurance 33,500

Inventory 2,653,000

Income tax instalments 225,000

Deferred tax (statement of financial position) loss carryforward 27,000

Deferred tax (statement of financial position) other 139,715

Land 12,485,300 Buildings 15,307,600

Accumulated depreciation buildings 4,170,935

Tools and other equipment 952,624

Accumulated depreciation tools and other equipment 903,348

Tools and other equipment under construction (in progress) 106,329

Vehicles delivery, service, sales 212,004

Accumulated depreciation vehicles 131,336

Office equipment 85,220

Accumulated depreciation office equipment 47,006

Computer equipment 316,716

Accumulated depreciation computer equipment 257,680

Right-of-use asset 10,132

Accumulated depreciation right-of-use asset 338

Net pension plan asset 108,000

Accounts payable 1,387,410

Accounts payable US$ at Canadian equivalent 106,329

Accounts payable accrual 315,678

Payroll taxes payable 112,500

Note payable Credit Financier Ltd. (at fair value through profit or loss) 250,000

Current portion of long-term debt 500,000

Provision for warranty payable 29,494

Long-term debt 4,400,000

Bonds payable 2,920,705

Convertible bonds payable 2,204,771

Liability under stock appreciation rights (SARs) 94,185

Preference shares A cumulative (12,500 outstanding, $4) 625,000

Preference shares B non-cumulative (34,000 outstanding, $3) 3,400,000

Preference shares C non-cumulative convertible (55,000 outstanding, $2) 2,475,000

Contributed surplus employee stock option plan (ESOP) plan 20X1 20,000

Contributed surplus ESOP plan 20X3 180,000

Common shares ESOP plan 20X3 1,700,000

Common shares (1,200,000 outstanding) 4,500,000

Retained earnings 2,969,595

Revenue sales 13,000,000

Cost of goods sold 6,328,000

Advertising 150,000

Audit and legal fees 76,500

Bad debts expense 130,000

Bond transaction expense 231,000

Communications phone, fax, computer, internet 42,000

Dues and memberships golf 42,300

Interest expense bonds 279,292

Interest expense long-term debt 475,000

Interest expense other 7,089

Insurance expense property, building, and casualty 98,652

Insurance automobile 26,400

Janitorial services 63,000

Meals and entertainment 72,400

Office expense 32,500

Penalties and interest 2,764

Property taxes 337,300

Training and development 77,600

Utilities 61,900

Wages, salaries, and benefits 2,048,605

Warranty expense 24,300

Dividend income 4,500

Gain/loss of sale of property, plant, and equipment 2,500

Depreciation expense owned assets 565,679

Depreciation expense right-of-use assets 338

Total 46,727,060

The depreciation expense journal entry had already been done for the year and is included in the above totals. The journal entry was as follows:

DR Depreciation expense 565,679

DR Depreciation expense right-of-use asset 338

CR Accumulated depreciation buildings 362,690

CR Accumulated depreciation tools and other equipment 78,552

CR Accumulated depreciation vehicles 16,417

CR Accumulated depreciation office equipment 4,948

CR Accumulated depreciation computer equipment 103,072

CR Accumulated depreciation right-of-use asset 338

Note: Capital cost allowance (CCA) for 20X6 is $681,870.00. The closing balance as at December 31,20X6 in undepreciated capital cost (UCC) is $11,765,130. No additions were made to the property, plant, and equipment accounts in 20X6.