ch16 - CHAPTER16 EXERCISE163(1020minutes BondsPayable...

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CHAPTER 16 EXERCISE 16-3 (10–20 minutes) Conversion recorded at book value of the bonds: Bonds Payable .............................................................. 500,000 Premium on Bonds Payable ........................................ 7,500 Preferred Stock (500 X 20 X $50) ......................... 500,000 Paid-in Capital in Excess of Par (Preferred Stock) ............................................... 7,500 EXERCISE 16-4 (15–20 minutes) (a) Cash ........................................................................ 10,800,000 Bonds Payable ............................................... 10,000,000 Premium on Bonds Payable ......................... 800,000 (To record issuance of $10,000,000 of 8% convertible debentures for $10,800,000. The bonds mature in twenty years, and each $1,000 bond is convertible into five shares of $30 par value common stock) EXERCISE 16-4 (Continued) (b) Bonds Payable ................................................ 3,000,000 Premium on Bonds Payable (Schedule 1) ................................................ 216,000 Common Stock, $15 par (Schedule 2) ........................................ 450,000 Paid-in Capital in Excess of Par ............ 2,766,000 (To record conversion of 30% of the outstanding 8% convertible debentures after giving effect to the 2-for-1 stock split) Schedule 1 Computation of Unamortized Premium on Bonds Converted Premium on bonds payable on January 1, 2006 $800,000 Amortization for 2006 ($800,000 ÷ 20) $40,000 Amortization for 2007 ($800,000 ÷ 20) 40,000 80,000 16-1
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Premium on bonds payable on January 1, 2008 720,000 Bonds converted 30% Unamortized premium on bonds converted $216,000 Schedule 2 Computation of Common Stock Resulting from Conversion Number of shares convertible on January 1, 2006: Number of bonds ($10,000,000 ÷ $1,000) 10,000 Number of shares for each bond X 5 50,000 Stock split on January 1, 2007 X 2 Number of shares convertible after the stock split 100,000 % of bonds converted X 30% Number of shares issued 30,000 Par value/per share $15 Total par value $450,000 EXERCISE 16-7 (10–15 minutes) (a) Basic formulas: Value of bonds without warrants X Issue price = Value assigned to bonds Value of bonds without warrants + Value of warrants Value of warrants X Issue price = Value assigned to warrants
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