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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. If no entry is required, select "No Entry for the account titles and enter O for the amounts. List all debit entries before credit entries.) Account Titles and Explanation Bonds Payable Contributed Surplus-Conversion Rights Loss on Retirement of Bonds Retained Earnings Cash Debit 2390000 625000 12500 5000 Credit 3037500

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. If no entry is required, select "No Entry for the account titles and enter O for the amounts. List all debit entries before credit entries.) Account Titles and Explanation Bonds Payable Contributed Surplus-Conversion Rights Loss on Retirement of Bonds Retained Earnings Cash Debit 2390000 625000 12500 5000 Credit 3037500

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 2023, when the fair value of its common shares was $73 per share, Sheridan 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 $11.9 million. The bond payment's present value at the time of issuance was $9.4 million and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2024, the corporation's common shares were split 3 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2025, when the fair value of the corporation's common shares was $123 per share, holders of 25% of the convertible debentures exercised their conversion option. Sheridan applies ASPE and uses the straight-line method for amortizing any bond discounts or premiums.
Transcribed Image Text:On January 1, 2023, when the fair value of its common shares was $73 per share, Sheridan 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 $11.9 million. The bond payment's present value at the time of issuance was $9.4 million and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2024, the corporation's common shares were split 3 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2025, when the fair value of the corporation's common shares was $123 per share, holders of 25% of the convertible debentures exercised their conversion option. Sheridan applies ASPE and uses the straight-line method for amortizing any bond discounts or premiums.
Assume, instead, that Sheridan decides to retire the bonds early, on January 1, 2025, by paying cash of $3,037,500 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. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.) Account Titles and Explanation Bonds Payable Contributed Surplus Conversion Rights Loss on Retirement of Bonds Retained Earnings Cash Debit 2390000 625000 12500 5000 Credit 3037500
Transcribed Image Text:Assume, instead, that Sheridan decides to retire the bonds early, on January 1, 2025, by paying cash of $3,037,500 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. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.) Account Titles and Explanation Bonds Payable Contributed Surplus Conversion Rights Loss on Retirement of Bonds Retained Earnings Cash Debit 2390000 625000 12500 5000 Credit 3037500
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