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ch16 - SOLUTIONS TO B EXERCISES E16-1B(1520 minutes 1...

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SOLUTIONS TO B EXERCISES E16-1B (15–20 minutes) 1. Cash ($50,000,000 X 1.02) .............................. 51,000,000 Bonds Payable ......................................... 50,000,000 Premium on Bonds Payable ................... 1,000,000 Unamortized Bond Issue Costs ..................... 750,000 Cash .......................................................... 750,000 2. Cash ................................................................. 35,350,000 Bonds Payable ......................................... 35,000,000 Premium on Bonds Payable ................... 122,500 Paid-in Capital—Stock Warrants ............ 227,500 Value of bonds plus warrants ($35,000,000 X 1.01) $35,350,000 Value of warrants (35,000 X $6.50) 227,500 Value of bonds $35,122,500 3. Debt Conversion Expense ............................. 355,000 Bonds Payable ................................................ 60,000,000 Premium on Bonds Payable .......................... 155,000 Common Stock ......................................... 600,000 Paid-in Capital in Excess of Par ............. 59,555,000* Cash .......................................................... 355,000 *[($60,000,000 + $155,000) – $600,000] 16-1
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E16-2B (15–20 minutes) (a) Interest Payable ($900,000 X 4/6) ........................... 600,000 Interest Expense ($900,000 X 2/6) + $1,890 .............. 301,890 Discount on Bonds Payable ............................ 1,890 Cash ($15,000,000 X 12% ÷ 2) .......................... 900,000 Calculations: Par value $15,000,000 Issuance price 14,550,000 Total discount $ 450,000 Months remaining 476 Discount per month $945 ($450,000 ÷ 476) Discount amortized $1,890 (2 X $945) (b) Bonds Payable ......................................................... 7,500,000 Discount on Bonds Payable ............................. 221,220 Common Stock (60,000 X $1) ........................... 60,000 Paid-in Capital in Excess of Par ...................... 7,218,780* *($7,500,000 – $221,220) – $60,000 Calculations: Discount related to 1/2 of the bonds ($450,000 X 1/2) $225,000 Less: Discount amortized [($225,000 ÷ 476) X 8] 3,780 Unamortized bond discount $221,220 E16-3B (10–20 minutes) Conversion recorded at book value of the bonds: Bonds Payable ................................................................. 5,600,000 Premium on Bonds Payable ........................................... 150,000 Preferred Stock (5,600 X 10 X $1) .......................... 56,000 Paid-in Capital in Excess of Par (Common Stock) .................................................. 5,694,000 16-2
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E16-4B (15–20 minutes) (a) Cash ................................................................... 26,500,000 Bonds Payable .......................................... 25,000,000 Premium on Bonds Payable .................... 1,500,000 (b) Bonds Payable .................................................. 10,000,000 Premium on Bonds Payable (Schedule 1) .................................................. 510,000 Common Stock, $0.50 par (Schedule 2) .......................................... 100,000 Paid-in Capital in Excess of Par .............. 10,410,000 Schedule 1 Computation of Unamortized Premium on Bonds Converted Premium on bonds payable on July 1, 2006 $1,500,000 Amortization for 2006 ($1,500,000 ÷ 10 X 6/12) $ 75,000 Amortization for 2007 ($1,500,000 ÷ 10) 150,000 225,000 Premium on bonds payable on January 1, 2008 1,275,000 Bonds converted (10/25) 40% Unamortized premium on bonds converted $ 510,000 Schedule 2 Computation of Common Stock Resulting from Conversion Number of shares convertible on January 1, 2006: Number of bonds ($25,000,000 ÷ $1,000) 25,000 Number of shares for each bond X 10 250,000 Stock split on January 1, 2007 X 2 Number of shares convertible after the stock split 500,000 % of bonds converted X 40% Number of shares issued 200,000 Par value/per share $0.50 Total par value $100,000 16-3
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E16-5B (10–20 minutes) Interest Expense .............................................................. 153,395 Discount on Bonds Payable ................................... 3,395 [$110,050 ÷ 162 = $679; $679 X 5] Cash (12% X $2,500,000 X 1/2) ............................... 150,000 Bonds Payable ................................................................. 2,500,000 Loss on Retirement of Debt ........................................... 53,327** Discount on Bonds Payable ($110,050 – $3,395) ....... 106,655 Cash .......................................................................... 1,250,000 Common Stock (1,250 X 15 X 10) ........................... 187,500 Paid-in Capital in Excess of Par ............................. 1,009,172* *[$1,250,000 – ($106,655 X 1/2)] – $187,500 **[$1,250,000 – ($106,655 X 1/2)] – $1,250,000 16-4
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E16-6B (25–35 minutes) (a) December 31, 2006 Bond Interest Expense .............................................. 56,667 Premium on Bonds Payable ..................................... 3,333 ($100,000 X 1/15 X 6/12) Cash ($1,000,000 X 12% X 6/12) ........................ 60,000 (b) January 1, 2007 Bonds Payable ........................................................... 400,000 Premium on Bonds Payable ..................................... 34,667 Common Stock (400 X 4 X $5) .......................... 8,000 Paid-in Capital in Excess of Par ....................... 426,667 Total premium ($1,000,000 X .10) $100,000 Premium amortized ($100,000 X 2/15) 13,333 Balance $ 86,667 Bonds converted ($400,000 ÷ $1,000,000) 40% Related premium ($86,667 X 40%) 34,667 16-5
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E16-6B (Continued) (c) May 31, 2007 Bond Interest Expense .............................................. 18,889 Premium on Bonds Payable ..................................... 1,111 Bond Interest Payable ....................................... 20,000 ($400,000 X 12% X 5/12) Bonds Payable ........................................................... 400,000 Premium on Bonds Payable ..................................... 33,556 Common Stock (400 X 4 X $5) .......................... 8,000 Paid-in Capital in Excess of Par ....................... 425,556 Premium as of January 1, 2007, for $400,000 of bonds $34,667 $34,667 ÷ 13 years remaining X 5/12 (1,111 ) Premium as of May 31, 2007, for $400,000 of bonds $33,556 (d) June 30, 2007 Bond Interest Expense .............................................. 11,333 Premium on Bonds Payable ..................................... 667**
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