ACTP 5007_class 3 and review (2009 - 13e)

ACTP 5007_class 3 and review (2009 - 13e) - E16-1 (Issuance...

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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 record each transaction. 1. Coyle Corp. issued $10,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, 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) 9,900,000 Discount on Bonds Payable 100,000 Bonds Payable 10,000,000 Unamortized Bond Issue Costs 70,000 Cash 70,000 2. Lambert Company issued $10,000,000 par value 10% bonds at 98. One detachable stock purchase 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) 9,800,000 Discount on Bonds Payable 600,000 Bonds Payable 10,000,000 Paid in Capital - Stock Warrants 400,000 To calculate: Value of bonds plus warrants: ($10,000,000 *. 98) $9,800,000 Value of warrants ($10,000,000/$100) * $4 400,000 Value of bonds $9,400,000 Discount 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 common stock 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 75,000 Bonds Payable 10,000,000 Discount on Bonds Payable 55,000 Common Stock 1,000,000 Paid in Capital in Excess of Par 8,945,000 Cash 75,000 To calculate paid in capital in excess of par: [($10,000,000 - $55,000) - $1,000,000]
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Exercise 16-4 Conversion of Bonds On January 1, 2010, when its $30 par value common stock was selling for $80 per share, Bartz Corp. issued $10,000,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to covert the bond into five shares of the corporation's common stock. The debentures were issued for $10,600,000. The present value of the bond payments at the time of issuance was $8,500,000, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2012, the corporation's $30 par value common stock was split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2011, when the corporation's $15 par value common stock was selling for $135 per share, holders of 20% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums. Instructions: (a) Prepare in general journal form the entry to record the original issuance of the convertible debentures. Cash 10,600,000 Bond 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) 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.
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This note was uploaded on 06/06/2011 for the course ACCT 5007 taught by Professor Cherieabaker during the Spring '09 term at Nova Southeastern University.

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ACTP 5007_class 3 and review (2009 - 13e) - E16-1 (Issuance...

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