Question 1
For each of the unrelated transactions described below, present the entry required to record the bond transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)
1. On August 1, 2018, Lane Corporation called its 10% convertible bonds for conversion. The $6,600,000 par bonds were converted into 264,000 shares of $20 par common stock. On August 1, there was $660,000 of unamortized premium applicable to the bonds. The fair value of the common stock was $20 per share. Ignore all interest payments. 2. Packard, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $2,900,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94. 3. Gomez Company issues $7,800,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $7,696,000 and the value of the warrants is $508,000. The bonds with the warrants sold at 101.
Question 1
For each of the unrelated transactions described below, present the entry required to record the bond transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)
| 1. | On August 1, 2018, Lane Corporation called its 10% convertible bonds for conversion. The $6,600,000 par bonds were converted into 264,000 shares of $20 par common stock. On August 1, there was $660,000 of unamortized premium applicable to the bonds. The fair value of the common stock was $20 per share. Ignore all interest payments. | |
| 2. | Packard, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $2,900,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94. | |
| 3. | Gomez Company issues $7,800,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $7,696,000 and the value of the warrants is $508,000. The bonds with the warrants sold at 101. |
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Please show your work so that I can understand what isinvolved.
Volker Inc. issued $4,392,000 of convertible 10-year bonds onJuly 1, 2014. The bonds provide for 12% interest payablesemiannually on January 1 and July 1. The discount in connectionwith the issue was $64,800, which is being amortized monthly on astraight-line basis.
The bonds are convertible after one year into 10 shares of VolkerInc.âs $100 par value common stock for each $1,200 of bonds.
On August 1, 2015, $439,200 of bonds were turned in for conversioninto common stock. Interest has been accrued monthly and paid asdue. At the time of conversion, any accrued interest on bonds beingconverted is paid in cash.
Prepare the journal entries to record the conversion, amortization,and interest in connection with the bonds as of the followingdates. (Credit account titles are automaticallyindented when amount is entered. Do not indent manually. If noentry is required, select "No Entry" for the account titles andenter 0 for the amounts.)
| (a) | August 1, 2015. (Assume the book value method is used.) | |
| (b) | August 31, 2015. | |
| (c) | December 31, 2015, including closing entries forend-of-year |
On January 1, 2016, Gless Textiles issued $11 million of 8%, 20-year convertible bonds at 101. The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 40 shares of Glessâs no par common stock. Bonds that are similar in all respects, except that they are nonconvertible, currently are selling at 99 (that is, 99% of face amount). Century Services purchased 20% of the issue as an investment.
| Required: | |
| 1. | Prepare the journal entries for the issuance of the bonds by Gless and the purchase of the bond investment by Century. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Journal entry worksheet A. Record the issuance of the bonds by Gless. B. Record the purchase of the bond investment by Century. Note: Enter debits before credits. No journal entry required Accounts receivable Allowance for uncollectible accounts Bond investment Bonds payable Building Cash Common stock Conversion expense Convertible bonds payable Debt issue costs Debt issue expense Discount on bond investment Discount on bonds payable Discount on notes payable Equipment Equityâconversion option Equityâstock warrants Fair value adjustment Gain on disposition of assets Gain on early extinguishment Gain on troubled debt restructuring Interest expense Interest payable Interest receivable Interest revenue Inventory Investment in common stock Investment in convertible bonds Investment in stock warrants Land Loss on early extinguishment Loss on sale of investment Machinery Notes payable Notes receivable Premium on bond investment Premium on bonds payable Retained earnings Unrealized holding gain Unrealized holding loss 2. Prepare the journal entries for the June 30, 2020, interest payment by both Gless and Century assuming both use the straight-line method. (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Journal entry worksheet A. Record the interest payment by Gless. B. Record the receipt of interest by Century 3. On July 1, 2021, when Glessâs common stock had a market price of $33 per share, Century converted the bonds it held. Prepare the journal entries by both Gless and Century for the conversion of the bonds (book value method). (Enter your answers in whole dollars. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) Journal entry worksheet A. Record the entry for Gless regarding the conversion of the bonds. B. Record the entry for Century regarding the conversion of the bonds. |
