The senior auditor has assigned the review of the company's convertible securities and the employee compensation plan

Question:

The senior auditor has assigned the review of the company's convertible securities and the employee compensation plan to you. After reviewing the convertible securities, you realize that if everyone converted their securities to shares of stock, it would have a significant effect on the financial statements. The is currently listed at $65 a share on the open market and the for each share is $5. Listed below are the potential securities that could be converted and the current value listed on the financial statements:
Financial Statement Listings
5 percent cumulative preferred stock - $100 paid-in capital - Preferred stock................................................$5,000,000
Convertible bond payable (7 percent, 10-year bonds issued 7/1/06)...................$15,000,000
Discount on convertible bonds payable......................................................$1,125,000
Security_________________________________________________ Conversion Rate
100,000 shares of $100 preferred stock...........3 shares of CS for each share
$1,000 convertible bond.......................................20 shares of CS for each bond
The stock compensation plan grants the company's 1,000 employees the option to purchase 10 shares of stock annually. The for the stock is based on current market price. This year the will be $45.
Analyze the company's convertible securities. Prepare the journal entries that would be needed, if they were converted. Also, examine the company's proposed stock compensation plan, and compute the impact on the company's financial statements. In addition, update the log of issues to include this week's topics.
Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Strike Price
In finance, the strike price of an option is the fixed price at which the owner of the option can buy, or sell, the underlying security or commodity. Par Value
Par value is the face value of a bond. Par value is important for a bond or fixed-income instrument because it determines its maturity value as well as the dollar value of coupon payments. The market price of a bond may be above or below par,...