Class16 - Solutions

Class16 - Solutions - EXERCISE 16-4(a Cash 10,800,000 Bonds...

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EXERCISE 16-4 (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) (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 Premium on bonds payable on January 1, 2008 720,000 Bonds converted 30% Unamortized premium on bonds converted $216,000 1
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EXERCISE 16-4 (Continued) 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
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