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On January 1, 2020, when the fair value of its common shares was $85 per share, Cullumber Corp. issued $11 million of 9% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into 4 common shares. The debentures were issued for $11.7 million. The bond payment's present value at the time of issuance was $9.2 million and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2021, the corporation's common shares were split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2022, when the fair value of the corporation's common shares was $140 per share, holders of 35% of the convertible debentures exercised their conversion option. Cullumber Corp. applies ASPE, and uses the straight-line method for amortizing any bond discounts or premiums.

On January 1, 2020, when the fair value of its common shares was $85 per share, Cullumber Corp. issued $11 million of 9% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into 4 common shares. The debentures were issued for $11.7 million. The bond payment's present value at the time of issuance was $9.2 million and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2021, the corporation's common shares were split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2022, when the fair value of the corporation's common shares was $140 per share, holders of 35% of the convertible debentures exercised their conversion option. Cullumber Corp. applies ASPE, and uses the straight-line method for amortizing any bond discounts or premiums.

Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter14: Financing Liabilities: Bonds And Long-term Notes Payable
Section: Chapter Questions
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View Policies Current Attempt in Progress On January 1, 2020, when the fair value of its common shares was $85 per share, Cullumber Corp. issued $11 million of 9% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into 4 common shares. The debentures were issued for $11.7 million. The bond payment's present value at the time of issuance was $9.2 million and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2021, the corporation's common shares were split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2022, when the fair value of the corporation's common shares was $140 per share, holders of 35% of the convertible debentures exercised their conversion option. Cullumber Corp. applies ASPE, and uses the straight-line method for amortizing any bond discounts or premiums. Prepare the entry to record the original issuance of the convertible debentures. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Using the book value method, prepare the entry to record the exercise of the conversion option. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit How many shares were issued as a result of the conversion? shares Number of shares issued Assume, instead, that Cullumber Corp. decides to retire the bonds early, on January 1, 2022, by paying cash of $4,234,500 to the bondholders. On that date, the fair value of a similar bond without the conversion feature is $870 per bond. Prepare the journal entry using the book value method. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit
Transcribed Image Text:View Policies Current Attempt in Progress On January 1, 2020, when the fair value of its common shares was $85 per share, Cullumber Corp. issued $11 million of 9% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into 4 common shares. The debentures were issued for $11.7 million. The bond payment's present value at the time of issuance was $9.2 million and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2021, the corporation's common shares were split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2022, when the fair value of the corporation's common shares was $140 per share, holders of 35% of the convertible debentures exercised their conversion option. Cullumber Corp. applies ASPE, and uses the straight-line method for amortizing any bond discounts or premiums. Prepare the entry to record the original issuance of the convertible debentures. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit Using the book value method, prepare the entry to record the exercise of the conversion option. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit How many shares were issued as a result of the conversion? shares Number of shares issued Assume, instead, that Cullumber Corp. decides to retire the bonds early, on January 1, 2022, by paying cash of $4,234,500 to the bondholders. On that date, the fair value of a similar bond without the conversion feature is $870 per bond. Prepare the journal entry using the book value method. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.) Account Titles and Explanation Debit Credit
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