On December 31, 2016, ABC Corp. issues $50,000,000 of 5%, 25-year, convertible bonds for total proceeds of $39,000,000.Interest payments are made on December31 each year. Record the issuance of the convertible debt if the market rate of interest of similarly risk-rated, non-convertible debt is 7%. Required: Record the journal entry to convert common shares if on December 31, 2018, 45%of the bonds are converted.

On December 31, 2016, ABC Corp. issues $50,000,000 of 5%, 25-year, convertible bonds for total proceeds of $39,000,000.Interest payments are made on December31 each year. Record the issuance of the convertible debt if the market rate of interest of similarly risk-rated, non-convertible debt is 7%. Required: Record the journal entry to convert common shares if on December 31, 2018, 45%of the bonds are converted.

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 3EB: Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual...

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On July 2, 2018, McGraw Corporation issued 500,000 of convertible bonds. Each 1,000 bond could be converted into 20 shares of the companys 5 par value stock. On July 3, 2020, when the bonds had an unamortized discount of 7,400 and the market value of the McGraw shares was 52 per share, all the bonds were converted into common stock. Required: 1. Prepare the journal entry to record the conversion of the bonds under (a) the book value method and (b) the market value method. 2. Compute the companys debt-to-equity ratio (total liabilities divided by total shareholders equity, as described in Chapter 6) under each alternative. Assume the companys other liabilities are 2 million and shareholders equity before the conversion is 3 million. 3. Assume the company uses IFRS and issued the bonds for 487,500 on July 2, 2018. On this date, it determined that the fair value of each bond was 930 and the fair value of the conversion option was 45 per bond. Prepare the journal entry to record the issuance of the bonds.
Frost Company has accumulated the following information relevant to its 2019 earningsper share. 1. Net income for 2019: 150,500. 2. Bonds payable: On January 1, 2019, the company had issued 10%, 200,000 bonds at 110. The premium is being amortized in the amount of 1,000 per year. Each 1,000 bond is currently convertible into 22 shares of common stock. To date, no bonds have been converted. 3. Bonds payable: On December 31, 2017, the company had issued 540,000 of 5.8% bonds at par. Each 1,000 bond is currently convertible into 11.6 shares of common stock. To date, no bonds have been converted. 4. Preferred stock: On July 3, 2018, the company had issued 3,800 shares of 7.5%, 100 par, preferred stock at 108 per share. Each share of preferred stock is currently convertible into 2.45 shares of common stock. To date, no preferred stock has been converted and no additional shares of preferred stock have been issued. The current dividends have been paid. 5. Common stock: At the beginning of 2019, 25,000 shares were outstanding. On August 3, 7,000 additional shares were issued. During September, a 20% stock dividend was declared and issued. On November 30, 2,000 shares were reacquired as treasury stock. 6. Compensatory share options: Options to acquire common stock at a price of 33 per share were outstanding during all of 2019. Currently, 4,000 shares may be acquired. To date, no options have been exercised. The unrecognized compens Frost Company has accumulated the following information relevant to its 2019 earnings ns is 5 per share. 7. Miscellaneous: Stock market prices on common stock averaged 41 per share during 2019, and the 2019 ending stock market price was 40 per share. The corporate income tax rate is 30%. Required: 1. Compute the basic earnings per share. Show supporting calculations. 2. Compute the diluted earnings per share. Show supporting calculations. 3. Indicate which earnings per share figure(s) Frost would report on its 2019 income statement.
Tama Companys capital structure consists of common stock and convertible bonds. At the beginning of 2019, Tama had 15,000 shares of common stock outstanding; an additional 4,500 shares were issued on May 4. The 7% convertible bonds have a face value of 80,000 and were issued in 2016 at par. Each 1,000 bond is convertible into 25 shares of common stock; to date, none of the bonds have been converted. During 2019, the company earned net income of 79,200 and was subject to an income tax rate of 30%. Required: Compute the 2019 diluted earnings per share.
On January 1, 2018, Wawatosa Inc. issued 5-year bonds with a face value of $200,000 and a stated interest rate of 12% payable semi-annually on July 1 and January 1. The bonds were sold to yield 10%. Assuming the bonds were sold at 107.732, what is the selling price of the bonds? Were they issued at a discount or a premium?
Chung Inc. issued $50,000 of 3-year bonds on January 1, 2018, with a stated rate of 4% and a market rate of 4%. The bonds paid interest semi-annually on June 30 and Dec. 31. How much money did the company receive when the bonds were issued? The bonds would be quoted at what rate?
Waseca Company had 5 convertible securities outstanding during all of 2019. It paid the appropriate interest (and amortized any related premium or discount using the straight line method) and dividends on each security during 2019. Each of the convertible securities is described in the following table: Additional data: Net income for 2019 totaled 119,460. The weighted average number of common shares outstanding during 2019 was 40,000 shares. No share options or warrants arc outstanding. The effective corporate income tax rate is 30%. Required: 1. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share. 2. Prepare a ranking of the order in which each of the convertible securities should be included in diluted earnings per share. 3. Compute basic earnings per share. 4. Compute diluted earnings per share. 5. Indicate the amount(s) of the earnings per share that Waseca would report on its 2019 income statement.
Smashing Cantaloupes Inc. issued 5-year bonds with a par value of $35,000 and an 8% semiannual coupon (payable June 30 and December 31) on January 1, 2018, when the market rate of interest was 10%. Were the bonds issued at a discount or premium? Assuming the bonds sold at 92.288, what was the sales price of the bonds?
The Gorman Group issued $900,000 of 13% bonds on June 30, 2018, for $967,707. The bonds were dated on June30 and mature on June 30, 2038 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interestis paid semiannually on December 31 and June 30.Required:1. Prepare the journal entry to record their issuance by The Gorman Group on June 30, 2018
The Gorman Group issued $900,000 of 13% bonds on June 30, 2016, for $967,707. The bonds were dated on June 30 and mature on June 30, 2036 (20 years). The market yield for bonds of similar risk and maturity is 12%. Interest is paid semiannually on December 31 and June 30. Required: 1. Prepare the journal entry to record their issuance by The Gorman Group on June 30, 2016. 2. Prepare the journal entry to record interest on December 31, 2016 (at the effective rate). 3. Prepare the journal entry to record interest on June 30, 2017 (at the effective rate).
The Gorman Group issued $930,000 of 11% bonds on June 30, 2021, for $1,009,794. The bonds were dated on June 30 and mature on June 30, 2041 (20 years). The market yield for bonds of similar risk and maturity is 10%. Interest is paid semiannually on December 31 and June 30. Required: 1.to3. Prepare the journal entries to record their issuance by The Gorman Group on Jun 30, 2021, interest on December 31, 2021, and interest on June 30, 2022 (at the effective rate). Record the issuance of the bond on June 30, 2021. Record the interest on December 31, 2021 (at the effective rate). Record the interest on June 30, 2022 (at the effective rate).
On December 31, 2021, Glimmer Company had outstanding P3,000,000 8% convertible bonds that mature on December 31, 2023. Interest is payable annually every December 31 and each P1,000 bond is convertible into 30 ordinary shares with a P20 par value per share. The unamortized discount was P200,000 and the equity component when the bonds were sold was P700,000. On the same date, 1,200 bonds were converted when the fair value of Glimmer’s share was P40. What amount of share premium should Glimmer recognize as a result of the conversion?
On January 1, 2019, $2,000,000 of five-year, 6% convertible bonds were sold by Company Z for $2,100,000. Interest is payable on June 30 and December 31 each year. The bonds can be converted in to 40,000 common shares at any time. At the time of issue, the market rate of interest for bonds of similar risk and duration without the conversion option was 7%. On January 1, 2020, the holders of $1,000,000 of the convertible bonds exercised their conversion option and exchanged their bonds for 20,000 common shares. The market value of the shares issued in exchange for these bonds was $ 1,300,000. Interest on the bonds was paid up to December 31, 2019. On January 1, 2021 Company Z repurchased the remaining $ 1,000,000 of the convertible bonds for $ 1,250,000. 1. Prepare the journal entries for all of 2019. 2. Prepare the journal entries for the conversion of the bonds on January 1, 2020. 3. Prepare the journal entries for the repurchase of the bonds on January 1, 2021. 4. Assuming Company…