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E16-1 (Issuance and Conversion of Bonds)For each of the unrelated transactions described below, present the entry(ies) required to recordeach transaction.1. Coyle Corp. issued $10,000,000 par value 10% convertible bonds at 99. If the bonds had not beenconvertible, the company's investment banker estimates they would have been sold at 95. Expenses of issuing the bonds were $70,000.Cash ($10,000,000 * .99)9,900,000Discount on Bonds Payable100,000Bonds Payable10,000,000Unamortized Bond Issue Costs70,000Cash70,0002. Lambert Company issued $10,000,000 par value 10% bonds at 98. One detachable stockpurchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $4.Cash ($10,000,000 * .98)9,800,000Discount on Bonds Payable600,000Bonds Payable10,000,000Paid in Capital - Stock Warrants400,000To calculate:Value of bonds plus warrants: ($10,000,000 *. 98)$9,800,000 Value of warrants ($10,000,000/$100) * $4400,000Value of bonds $9,400,000Discount on Bonds Payable = $10,000,000 (bonds payable) - $9,400,000 (value of bonds).3. Sepracor Inc. called its convertible debt in 2010. Assume the following related to the transaction:The 11%, $10,000,000 par value bonds were converted into 1,000,000 shares of $1 par value commonstock on July 1, 2010. On July 1, there was $55,000 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.Debt Conversion Expense 75,000Bonds Payable10,000,000Discount on Bonds Payable55,000Common Stock1,000,000Paid in Capital in Excess of Par8,945,000Cash75,000To calculate paid in capital in excess of par:[($10,000,000 - $55,000) - $1,000,000]
Exercise 16-4 Conversion of BondsOn January 1, 2010, when its $30 par value common stock was selling for $80 per share, BartzCorp. issued $10,000,000 of 8% convertible debentures due in 20 years. The conversion option allowedthe holder of each $1,000 bond to covert the bond into five shares of the corporation's commonstock. The debentures were issued for $10,600,000. The present value of the bond payments at thetime of issuance was $8,500,000, and the corporation believes the difference between the presentvalue and the amount paid is attributable to the conversion feature. On January 1, 2012, thecorporation's $30 par value common stock was split 2 for 1, and the conversion rate for the bondswas adjusted accordingly. On January 1, 2011, when the corporation's $15 par value commonstock was selling for $135 per share, holders of 20% of the convertible debentures exercised theirconversion options. The corporation uses the straight-line method for amortizing any bonddiscounts or premiums.Instructions:(a) Prepare in general journal form the entry to record the original issuance of the convertible debentures.Cash10,600,000Bond Payable 10,000,000Premium on Bonds Payable600,000(To record issuance of $10,000,000 of 8% convertibledebentures for $10,600,000.The bonds mature in twentyyears, and each $1,000 bond is convertible into fiveshares of $30 par value common stock.)(b) Prepare in general journal form the entry to record the exercise of the conversion option,using the book value method. Show supporting computations in good form.