FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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For each of the unrelated transactions described below in (a) to (c), present the entries required to record the bond transactions.
a)On August 1, 2013, Lane Corporation called its 10% convertible bonds for conversion. The $6,000,000 par bonds were converted into 240,000 shares of $20 par common stock. On August 1, there was $700,000 of unamortized premium applicable to the bonds. The fair value of the common stock was $20 per share. Ignore all interest payments.
B. Packard, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $3,000,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94.
C. Gomez Company issues $10,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the
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- For each of the unrelated transactions described below, present the entries required to record each transaction. 1. Marin Corp. issued $18,800,000 par value 11% convertible bonds at 99. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95. 2. Headland Company issued $18,800,000 par value 11% bonds at 98. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $4. 3. Suppose Sepracor, Inc. called its convertible debt in 2020. Assume the following related to the transaction. The 12%, $10,100,000 par value bonds were converted into 1,010,000 shares of $1 par value common stock on July 1, 2020. On July 1, there was $52,000 of unamortized discount applicable to the bonds, and the company paid an additional $75,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.arrow_forwardOn May 1, 2021, Duck Corporation issued $2,000,000 of 8% nonconvertible bonds at 104, which are due on June 30, 2041. In addition, each $1,000 bond was issued with 25 detachable stock warrants, each of which entitled the bondholder to purchase for $50 one share of Duck common stock, par value $25. The bonds without the warrants would normally sell at 95. On May 1, 2021, the fair value of Duck's common stock was $40 per share and the fair value of the warrants was $2.00. What amount should Duck record on May 1, 2021 as paid-in capital from stock warrants? O $100,000 O $73,600 O $104,000 O $85,200 L ASAarrow_forwardThe long-term liability section of Eastern Post Corporation’s balance sheet as of December 31, 2017, included10% bonds having a face amount of $40 million and a remaining premium of $6 million. On January 1, 2018,Eastern Post retired some of the bonds before their scheduled maturity.Required:Prepare the journal entry by Eastern Post to record the redemption of the bonds under each of the independentcircumstances below:1. Eastern Post called half the bonds at the call price of 102 (102% of face amount).2. Eastern Post repurchased $10 million of the bonds on the open market at their market price of $10.5 million.arrow_forward
- On July 1, 2020, Tuttle Company had bonds payable outstanding with a face value of $100,000 and a book value of $93,000. The interest on these bonds was paid on June 30. When these bonds were issued, each $1,000 bond was convertible into 25 shares of $10 par common stock. To induce conversion, on June 15, 2020, the terms were changed so that each bond was convertible into 28 shares of common stock if the conversion was made within 30 days. All the bonds were converted on July 1, 2020, when the market price of the common stock was $42 per share. Required: Next Level Using the book value method, record the conversion of the bonds on July 1, 2020. PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 3 4 5arrow_forwardMills Corp. (MC) prepares its statements in accordance with IFRS. On January 1, 2021, MC issued 1,000 seven-year, 5% convertible bonds with a face value of $1,000. Interest is paid annually on the bonds on December 31. Each $1,000 bond is convertible into 35 common shares, which are currently trading at $34 per share. Similar bonds without conversion features carry an interest rate of 7%. The bonds were issued at 94. Required: Calculate the amount to be allocated to the bond and the options, and record the journal entry at the date of issuance. Assume that after six years, when the carrying amount of the bonds is $981,308, the holders of the convertible bond decide to convert their bonds before the bond maturity date. Prepare the journal entry to record the conversion. How many shares were issued at the conversion?arrow_forwardOn May 1, 2025, Sunland Co. issued $1590000 of 8% bonds at 102. The bonds are due on April 30, 2031. Twenty detachable stock warrants entitling the holder to purchase for $40 one share of Sunland's common stock, $15 par value, were attached to each $1000 bond. The bonds without the warrants would sell at 96. On May 1, 2025, the fair value of Sunland's common stock was $35 per share and of the warrants was $2. On May 1, 2025, Sunland should credit Paid-in Capital from Stock Warrants for O $60672. O $63600. O $64872. O $95400.arrow_forward
- For each of the unrelated transactions described below, present the entries required to record each transaction. 1. Pronghorn Corp. issued $21,600,000 par value 11% convertible bonds at 97. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95. 2. Stellar Company issued $21,600,000 par value 11% bonds at 96. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $4. 3. Suppose Sepracor, Inc. called its convertible debt in 2020. Assume the following related to the transaction. The 12%, $10,900,000 par value bonds were converted into 1,090,000 shares of $1 par value common stock on July 1, 2020. On July 1, there was $55,000 of unamortized discount applicable to the bonds, and the company paid an additional $78,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.arrow_forwardOn January 1, 2024, Gless Textiles issued $10 million of 7%, 20-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Gless’s no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount). Century Services purchased 15% of the issue as an investment. Questions: Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century. Prepare the journal entries for the June 30, 2028, interest payment by both Gless and Century assuming both use the straight-line method. On July 1, 2029, when Gless’s common stock had a market price of $33 per share, Century converted the bonds it held. Prepare the journal entries by both Gless and Century for the conversion of the bonds (book value method).arrow_forwardFor each of the unrelated transactions described below, present the entries required to record each transaction. 1. Bridgeport Corp. issued $18,800,000 par value 11% convertible bonds at 99. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95. 2. Indigo Company issued $18,800,000 par value 11% bonds at 98. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $4. 3. Suppose Sepracor, Inc. called its convertible debt in 2020. Assume the following related to the transaction. The 12%, $10,100,000 par value bonds were converted into 1,010,000 shares of $1 par value common stock on July 1, 2020. On July 1, there was $52,000 of unamortized discount applicable to the bonds, and the company paid an additional $75,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.…arrow_forward
- On March 31, 2011, Gardner Corporation received authorization to issue $50,000 of 9 percent, 30-year bonds payable. The bonds pay interest on March 31 and September 30. The entire issue was dated March 31, 2011, but the bonds were not issued until April 30, 2011. They were issued at face value. a. Prepare the journal entry at April 30, 2011, to record the sale of the bonds. b. Prepare the journal entry at September 30, 2011, torecord the semiannual bond interest payment. c. Prepare the adjusting entry at December 31, 2011, to record bond interest expense accrued since September 30, 2011. (Assume that no monthly adjusting entries to accrue interest expense had been made prior to December 31, 2011.)arrow_forwardOn January 1, 2018, Denver Services issued $20,000 of 8% bonds that mature in five years. The bonds were issued for $19,000. Prepare the journal entry to issue bonds. Omit explanationarrow_forwardOn October 1, 2015, Redoubtable Corp. issued 5%, 10-year bonds with a face value of $3,000,000 at 104%. On October 1 and April 1, interest is paid. Any premiums or discounts are amortized on a straight-line basis. If you were preparing Redoubtable Corporation’s income statement for December 31, 2015, what bond interest expense would you report?arrow_forward
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