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"2-19-2010 - EXERCISE 16-4(a Cash Bonds Payable...

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EXERCISE 16-4 (a) Cash .............................................................................................. 10,600,000 Bonds Payable ...................................................................... 10,000,000 Premium on Bonds Payable ................................................. 600,000 (To record issuance of $10,000,000 of 8% convertible debentures for $10,600,000. 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 ........................................................................ 2,000,000 Premium on Bonds Payable (Schedule 1) ...................................................................... 108,000 Common Stock, $15 par (Schedule 2) ............................................................ 300,000 Paid-in Capital in Excess of Par ................................... 1,808,000 (To record conversion of 20% 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, 2010 ............................................ ........................................................................................................ $600,000 Amortization for 2010 ($600,000 ÷ 20) ........................................................ $30,000 Amortization for 2011 ($600,000 ÷ 20) ........................................................ 30,000 60,000 Premium on bonds payable on January 1, 2012 ............................................ 540,000 Bonds converted ............................................................................................ 20% Unamortized premium on bonds converted .................................................. ........................................................................................................ $108,000 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, 2010: 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, 2011 ..................................................................... x 2
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