Cullumber Corporation had two issues of securities outstanding: common shares and a 7% convertible bond issue...

Cullumber Corporation had two issues of securities outstanding: common shares and a 7% convertible bond issue in the face amount of $8 million. Interest payment dates of the bond issue are June 30 and December 31. The conversion clause in the bond indenture entitles the bondholders to receive 40 no par value common shares in exchange for each $1,000 bond. The value of the equity portion of the bond issue is $48,000. On June 30, 2020, the holders of $2.40 million of the face value bonds exercised the conversion privilege. The market price of the bonds on that date was $1,240 per bond and the market price of the common shares was $38. The total unamortized bond discount at the date of conversion was $515,000.

Prepare the entry to record the exercise of the conversion option, using the book value method. Assume the company follows IFRS. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

Solutions

Expert Solution

Particulars	Debit	Credit
Bonds payable	2,245,000
Contributed surplus – conversion Rights	14,400
Common shares		2,259,400

Working notes:

Discount as of June 30, 2020 for 8,000,000 of bonds $515,000

Face value of all bonds $8,000,000

Carrying value of all bonds $7,485,000

Carrying amount of bonds converted:

=$2,400,000/$8,000,000 *$7,485,000

=$2,245,500

Carrying amount of rights exercised on conversion:

=$2,400,000/$8,000,000 *48,000

=$14,400

I hope it is useful to u if u have any doubt pls comment give me up thumb

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Wagagoostui Corporation has 300,000 common shares outstanding on Janu- ary 1, 2017, when it issues convertible...

Wagagoostui Corporation has 300,000 common shares outstanding on Janu- ary 1, 2017, when it issues convertible bonds. The debt issue is composed of 1,000 bonds at $1,000 face value with a 20-year term and a 10% coupon rate. Each bond is sold at 101 and is convertible into 20 common shares. Wagagoostui incurs costs of $80,000 related to the issue. An underwriter advises Wagagoostui that the bonds would likely have sold for 99 without the conversion feature. The straight-line method...

Cullumber Corporation had 102,000 common shares outstanding on December 31, 2019. During 2020, the company issued...

Cullumber Corporation had 102,000 common shares outstanding on December 31, 2019. During 2020, the company issued 12,000 shares on March 1, retired 6,800 shares on July 1, issued a 20% stock dividend on October 1, and issued 18,300 shares on December 1. For 2020, the company reported net income of $408,000 after a loss from discontinued operations of $64,000 (net of tax). The company issued a 2-for-1 stock split on February 1, 2021, and the company’s financial statements for the...

two issues of securities outstanding: common stock and $5,500,000 face value, 5-year, 3% convertible bonds which...

two issues of securities outstanding: common stock and $5,500,000 face value, 5-year, 3% convertible bonds which were issued January 1, 2019 when the market rate was 4%. Bond interest payments dates are June 30 and December 31. Each Bond is convertible into 40 shares of $20 par value common stock . On July 1, 2019 the holders of $1,100,000 face value exercise the conversion privilege . On the date, the bonds were selling at 110 and the market price of...

On January 1, 2020, Cullumber Corporation had $1,125,000 of common stock outstanding that was issued at...

On January 1, 2020, Cullumber Corporation had $1,125,000 of common stock outstanding that was issued at par. It also had retained earnings of $746,500. The company issued 40,000 shares of common stock at par on July 1 and earned net income of $410,000 for the year. Journalize the declaration of a 16% stock dividend on December 10, 2020, for the following independent assumptions. a. Par value is $10, and market price is $19. b. Par value is $5, and market...

At January 1, 2021, Canaday Corporation had outstanding the following securities: 690 million common shares 30...

At January 1, 2021, Canaday Corporation had outstanding the following securities: 690 million common shares 30 million 5% cumulative preferred shares, $50 par 6.4% convertible bonds, $3,000 million face amount, convertible into 60 million common shares The following additional information is available: On September 1, 2021, Canaday sold 72 million additional shares of common stock. Incentive stock options to purchase 40 million shares of common stock after July 1, 2020, at $14 per share, were outstanding at the beginning and...

At January 1, 2021, Canaday Corporation had outstanding the following securities: 690 million common shares 20...

At January 1, 2021, Canaday Corporation had outstanding the following securities: 690 million common shares 20 million 5% cumulative preferred shares, $50 par 6.4% convertible bonds, $3,000 million face amount, convertible into 60 million common shares The following additional information is available: On September 1, 2021, Canaday sold 72 million additional shares of common stock. Incentive stock options to purchase 40 million shares of common stock after July 1, 2020, at $14 per share, were outstanding at the beginning and...

At January 1, 2021, Canaday Corporation had outstanding the following securities: 710 million common shares 20...

At January 1, 2021, Canaday Corporation had outstanding the following securities: 710 million common shares 20 million 5% cumulative preferred shares, $50 par 6.4% convertible bonds, $4,000 million face amount, convertible into 80 million common shares The following additional information is available: On September 1, 2021, Canaday sold 78 million additional shares of common stock. Incentive stock options to purchase 60 million shares of common stock after July 1, 2020, at $12 per share, were outstanding at the beginning and...

At January 1, 2018, Canaday Corporation had outstanding the following securities: 760 million common shares 30...

At January 1, 2018, Canaday Corporation had outstanding the following securities: 760 million common shares 30 million 6% cumulative preferred shares, $50 par 7% convertible bonds, $3,000 million face amount, convertible into 90 million common shares The following additional information is available: On September 1, 2018, Canaday sold 81 million additional shares of common stock. Incentive stock options to purchase 50 million shares of common stock after July 1, 2017, at $10 per share were outstanding at the beginning and...

MiCa Worldwide that has two bond issues outstanding, “A” and “B.” For bond issue A, there...

MiCa Worldwide that has two bond issues outstanding, “A” and “B.” For bond issue A, there are 10,000 notes, each with a face value of $1,000, an 8 percent annual coupon rate (coupons are paid semi-annually), 10 years to maturity, and a current yield to maturity of 9 percent. For bond issue B, there are 5,000 notes, each with a face value of $1,000, a 6 percent annual coupon rate (coupons are paid semi-annually), 5 years to maturity, currently selling...

Convertible Securities and Earnings per Share Percy Company has 15,000 shares of common stock outstanding during...

Convertible Securities and Earnings per Share Percy Company has 15,000 shares of common stock outstanding during all of 2019. It also has 2 convertible securities outstanding at the end of 2019. These are: Convertible preferred stock: 1,000 shares of 9%, $100 par, preferred stock were issued in 2015 for $140 per share. Each share of preferred stock is convertible into 3.5 shares of common stock. The current dividends have been paid. To date, no preferred stock has been converted. Convertible...

Subjects