Bradley-Linkâs December 31, 2016, balance sheet included thefollowing items: Long-Term Liabilities ($ in millions) 8.0%convertible bonds, callable at 102 beginning in 2017, due 2020 (netof unamortized discount of $6) [note 8] $144 11.0% registered bondscallable at 105 beginning in 2026, due 2030 (net of unamortizeddiscount of $2) [note 8] 52 Shareholdersâ Equity 5 Equityâstockwarrants Note 8: Bonds (in part) The 8.0% bonds were issued in 2003at 96.0 to yield 10%. Interest is paid semiannually on June 30 andDecember 31. Each $1,000 bond is convertible into 50 shares of theCompanyâs no par common stock. The 11.0% bonds were issued in 2007at 103 to yield 10%. Interest is paid semiannually on June 30 andDecember 31. Each $1,000 bond was issued with 50 detachable stockwarrants, each of which entitles the holder to purchase one shareof the Companyâs no par common stock for $30, beginning 2017. OnJanuary 3, 2017, when Bradley-Linkâs common stock had a marketprice of $37 per share, Bradley-Link called the convertible bondsto force conversion. 90% were converted; the remainder wereacquired at the call price. When the common stock price reached anall-time high of $42 in December of 2017, 40% of the warrants wereexercised.

Required: 1. Prepare the journal entries that were recorded wheneach of the two bond issues was originally sold in 2003 and2007

2. Prepare the journal entry to record (book value method) theconversion of 80% of the convertible bonds in January 2017 and theretirement of the remainder.

3. Assume Bradley-Link induced conversion by offering $120 cashfor each bond converted. Prepare the journal entry to record (bookvalue method) the conversion of 90% of the convertible bonds inJanuary 2017.

4. Assume Bradley-Link induced conversion by modifying theconversion ratio to exchange 55 shares for each bond rather thanthe 50 shares provided in the contract. Prepare the journal entryto record (book value method) the conversion of 80% of theconvertible bonds in January 2017.

5. Prepare the journal entry to record the exercise of thewarrants in December 2017

Question

Bradley-Linkâs December 31, 2016, balance sheet included thefollowing items: Long-Term Liabilities ($ in millions) 8.0%convertible bonds, callable at 102 beginning in 2017, due 2020 (netof unamortized discount of $6) [note 8] $144 11.0% registered bondscallable at 105 beginning in 2026, due 2030 (net of unamortizeddiscount of $2) [note 8] 52 Shareholdersâ Equity 5 Equityâstockwarrants Bonds (in part) The 8.0% bonds were issued in 2003 at 96.0to yield 10%. Interest is paid semiannually on June 30 and December31. Each $1,000 bond is convertible into 50 shares of the Companyâsno par common stock. The 11.0% bonds were issued in 2007 at 103 toyield 10%. Interest is paid semiannually on June 30 and December31. Each $1,000 bond was issued with 50 detachable stock warrants,each of which entitles the holder to purchase one share of theCompanyâs no par common stock for $30, beginning 2017. On January3, 2017, when Bradley-Linkâs common stock had a market price of $37per share, Bradley-Link called the convertible bonds to forceconversion. 90% were converted; the remainder were acquired at thecall price. When the common stock price reached an all-time high of$42 in December of 2017, 40% of the warrants were exercised.Required: 1. Prepare the journal entries that were recorded wheneach of the two bond issues was originally sold in 2003 and 2007 2.Prepare the journal entry to record (book value method) theconversion of 80% of the convertible bonds in January 2017 and theretirement of the remainder. 3. Assume Bradley-Link inducedconversion by offering $120 cash for each bond converted. Preparethe journal entry to record (book value method) the conversion of90% of the convertible bonds in January 2017. 4. AssumeBradley-Link induced conversion by modifying the conversion ratioto exchange 55 shares for each bond rather than the 50 sharesprovided in the contract. Prepare the journal entry to record (bookvalue method) the conversion of 80% of the convertible bonds inJanuary 2017. 5. Prepare the journal entry to record the exerciseof the warrants in December 2017

SWEET PHARMACEUTICAL INDUSTRIES SELECTED BALANCE SHEET INFORMATION JUNE 30, 2017
Long-term debt
Notes payable, 11%		$990,000
7% convertible bonds payable		5,080,000
11% bonds payable		6,120,000
Total long-term debt		$12,190,000

Shareholdersâ equity
Preferred stock, 6% cumulative, $50 par value, 95,000 shares authorized, 23,750 shares issued and outstanding		$1,187,500
Common stock, $1 par, 10,000,000 shares authorized, 1,000,000 shares issued and outstanding		1,000,000
Additional paid-in capital		3,920,000
Retained earnings		5,880,000
Total shareholdersâ equity		$11,987,500

Unlock all answers

Related questions

Weekly leaderboard

1.		Options were granted on July 1, 2016, to purchase 180,000 shares at $15 per share. Although no options were exercised during fiscal year 2017, the average price per common share during fiscal year 2017 was $20 per share.
2.		Each bond was issued at face value. The 7% convertible bonds will convert into common stock at 50 shares per $1,000 bond. The bonds are exercisable after 5 years and were issued in fiscal year 2016.
3.		The preferred stock was issued in 2016.
4.		There are no preferred dividends in arrears; however, preferred dividends were not declared in fiscal year 2017.
5.		The 1,000,000 shares of common stock were outstanding for the entire 2017 fiscal year.
6.		Net income for fiscal year 2017 was $1,500,000, and the average income tax rate is 40%.