Solutions to Questions for Class Discussion

Solutions to Questions for Class Discussion - COMMERCE 450...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
COMMERCE 450 FALL 2011 SOLUTIONS TO IN-CLASS PROBLEMS COMPLEX FINANCIAL INSTRUMENTS Question 1 Carrying value of bond at issue date: Principal (2,000,000 at 3% per period after 20 periods) 1,107,352 Interest (80,000 at 3% per period for 20 periods) 1,190,198 2,297,550 Less: issue costs (48,105) 2,249,445 Journal entry on October 1, 2008 Cash 2,551,895 (2,600,000 - 48,105) Bond payable 2,000,000 face value Premium on bond payable 249,445 (2,249,445 - 2,000,000) Detachable stock warrants 160,000 (2,000 x 20 x 4) Common stock conversion rights 142,450 (to balance entry) Journal entry on December 31, 2008 Interest expense 35,429 (2,249,445 @ 6.3% for 3 months Premium on bond payable 4,571 (to balance entry) Interest payable 40,000 (2,000,000 @ 8% for 3 months) Journal entry on February 22, 2011 Detachable stock warrants 80,000 (50% of 160,000) Cash 400,000 (20,000 x 20) Common stock 480,000 (to balance entry) Question 2 Journal entry at February 1, 2009 Preferred shares 30,000 (30,000 at par value of $1) Contributed surplus -- issue price of preferred shares 15,000 (30,000 at $ .50) Retained earnings 7,500 (to balance entry) Cash 52,500 (30,000 at proceeds of $1.75) Journal entry at March 31, 2009 Cash 4,900,000 Discount on bonds payable 565,040 (5,000,000 - 4,434,960) Detachable stock warrants 250,000 (125,000 x $2) Common stock conversion rights 215,040 (to balance entry) Bonds payable 5,000,000 (face value)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 12/10/2011 for the course COMM 450 taught by Professor Jackes during the Spring '10 term at The University of British Columbia.

Page1 / 3

Solutions to Questions for Class Discussion - COMMERCE 450...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online