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For each of the unrelated transactions described below, present the entries required to record...

Question:

For each of the unrelated transactions described below, present the entries required to record each transaction.

1. Grand Corporation issued 20 million 273,000 par value convertible bonds at value 10% convertible bonds at 99. If the bonds had not been convertible, the company's investment banker estimate they would have been sold at 95. Expenses of issuing the bonds were $79,200.

2. Who's Your Company issued 20,273,000 dollars par value 10% bonds at 98. One detachable stock warrant was issued with each $100 par value Bond. At the time of issuance, the warrants were selling for $5.

3. Suppose Sepracor Incorporated called it's convertible debt in 2014. Assume the following are related to the transaction: the 11%, 10,257,000 par value Bonds were converted into 1,025,700 shares of $1 par value common stock on July 1st, 2014. On July 1st, there was 62,100 of unamortized discount applicable to the bonds, and the company paid an additional $77,600 to the bondholders to induce conversion of all the bonds. The company record the conversion using the Book Value method.

For 1. Record the journal entries to record the bond issue (there are 3 entries) next record the bond issue cost (there are two entries)

For 2. record the journal entries to be filed there are four entries.

For 3. record the journal entries for Sepracor Incorporation (there are 5 entries).

Discount Bond:

When the issue price of the bond is less than the face value then such a bond is called Discount Bond. This is due to the interest rate that the bond is offering that is less than the market interest rate.

Answer and Explanation:

1.

Accounts Title & Explanation Debit ($) Credit ($)
Cash ($20,273,000 * 0.99) $20,070,270
Discount on Bonds Payable $202,730
Bonds Payable $20,273,000
Unamortized Bond Issue Costs $79,200
Cash $79,200


2.

Accounts Title & Explanation Debit ($) Credit ($)
Cash ($20,273 * 0.98) $19,867,540
Discount on Bonds Payable $1,419,110
Bonds Payable $20,273,000
Paid-in Capital-Stock Warrants (202,730 * $5) $1,013,650


3.

Accounts Title & Explanation Debit ($) Credit ($)
Debt Conversion Expense $77,600
Bonds Payable $10,257,000
Discount on Bonds Payable $62,100
Common Stock $1,025,700
Paid-in Capital in Excess of Par [($10,257,000 - $62,100) - $1,025,700] $9,169,200
Cash $77,600

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Accounting for Long-Term Liabilities

from Accounting 101: Financial Accounting

Chapter 10 / Lesson 6
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