Question

In: Accounting

On January 1, 2019, Garner issued 10-year, $200,000

On January 1, 2019, Garner issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2020. (Ignore all tax effects.)

Requirement 1: Accounting

Prepare the journal entry Garner would have made on January 1, 2019, to record the issuance of the bonds.

Garner’s net income in 2020 was $30,000 and was $27,000 in 2019. Compute basic and diluted earnings per share for Garner for 2020 and 2019.

Assume that 75% of the holders of Garner’s convertible bonds convert their bonds to stock on June 30, 2021, when Garner’s stock is trading at $32 per share. Garner pays $50 per bond to induce bondholders to convert. Prepare the journal entry to record the conversion.

Expert Solution

(a) Journal entry for issue of bonds

2019

January 1

Bank a/c Dr

To 6% bonds payable

$200,000

(b)

2020

2019

Earnings

$30,000

$27,000

No of Shares

10000

Basic EPS

(earning/no. of shares above)

$3

$2.7

No of shares on conversion of bonds into equity

Existing shares

10000

Converted shares

6000

200,000/1000*30

No of shares

16000

Diluted EPS

(earning/no. of shares above)

1.875

1.6875

(c) 75% of the convertible bonds = 200,000/1000 * 75%

= 150 bonds

converted into = 150 * 30 shares

= 4500 shares

existing shares = 10000 shares

total shares after conversion = 14,500 shares

face value of converted shares = 4500*2 = $9000

share premium = (32-2) * 4500

= $135,000

Journal entry

June 30, 2021

6% convertible bond a/c Dr.

To share cap

To share premium

To profit & loss

$150,000

$9,000

$135,000

$6,000

Basic EPS = $3 , $2.7

Diluted EPS = 1.875, 1.6875

S Mahalaxmi answered 2 years ago

On January 1, 2019, Garner issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000...

On January 1, 2019, Garner issued 10-year, $200,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2 par value common stock. The company has had 10,000 shares of common stock (and no preferred stock) outstanding throughout its life. None of the bonds have been converted as of the end of 2020. (Ignore all tax effects.) Requirement 1: Accounting Prepare the journal entry Garner would have made on January 1, 2019, to record...

On January 1, 2011, Garner issued 10-year $200,000 face value, 6% bonds at par. Each $1,000...

On January 1, 2011, Garner issued 10-year $200,000 face value, 6% bonds at par. Each $1,000 bond is convertible into 30 shares of Garner $2, par value, ordinary shares. Interest on the bonds is paid annually on December 31. The market rate for Garner’s non-convertible debt is 9%. The company has had 10,000 ordinary shares (and no preference shares) outstanding throughout its life. None of the bonds have been converted as of the end of 2012. (Ignore all tax effects.)Accounting(a)...

On January 1, 2012, Hess Corporation issued $200,000 of 9% 10 year bonds at 103, with...

On January 1, 2012, Hess Corporation issued $200,000 of 9% 10 year bonds at 103, with interest payable on July 1 and December 31 of each year. Hess uses straight-line amortization. On June 30, 2015, Hess retired $100,000 of these bonds at 98 plus accrued interest. What gain or loss should Hess record as a gain or loss on retirement of these bonds? Prepare the journal entry.

On January 1, 2019, Jackson Manufacturing issued $ 150,000 of 10%, 10-year bonds for $157,446. Interest...

On January 1, 2019, Jackson Manufacturing issued $ 150,000 of 10%, 10-year bonds for $157,446. Interest is payable semiannually on June 30 and December 31. Using the given information, answer the following. Show all work for credit. (Round all answers to two decimal places as appropriate.) #1: Record the journal entry to account for the issuance of these bonds. #2: Record the remaining journal entries in 2019 related to the bond issue. Assume that Jackson uses the straight-line method to...

(FORECAST) Chicago Company issued a 3-year term on January 1, 2017, with 10% nominal interest, 200,000...

(FORECAST) Chicago Company issued a 3-year term on January 1, 2017, with 10% nominal interest, 200,000 TL nominal value bond sold for 190.393 TL. The main currency of the bond is at one time, and interest rates start from 2017 on 31 December of each year will be paid. The market interest rate is 12%. Requested: Make all the journal ledger records that the Chicago Administration must make in 2017, 2018. 31.12.2017 of these records, Show the impact of their...

On January 1, 2019, Gage Inc. had 200,000 share $1 par value common stock issued and...

On January 1, 2019, Gage Inc. had 200,000 share $1 par value common stock issued and outstanding. Prepare the following journal entries in good form: March 1 - Issued 10,000 shares of common stock at $37 per share. June 16 - Bought 5,000 shares of common stock at $29 per share. Oct. 3 - Sold 2,500 shares of treasury stock at $30 per share. Dec. 17 - Sold 1,000 shares of teasury stock at $26 per share.

On January 1, Soren Enterprises issued 15-year bonds with a face value of $200,000. The bonds...

On January 1, Soren Enterprises issued 15-year bonds with a face value of $200,000. The bonds carry a contract interest rate of 8 percent, and interest is paid semi-annually. On the issue date, the annual market interest rate for bonds issued by companies with similar riskiness was 10 percent. The issuance price of the bonds was $169,255. Which ONE of the following would be included in the journal entry necessary on the books of the bond issuer to record theSECOND...

On January 1, 2019, Drennen Inc. issued $5 million face amount of 10-year, 14% stated rate...

On January 1, 2019, Drennen Inc. issued $5 million face amount of 10-year, 14% stated rate bonds when market interest rates were 12%. The bonds pay semiannual interest each June 30 and December 31 and mature on December 31, 2028. a. Calculate the proceeds (issue price) of Drennen Inc.'s bonds on January 1, 2019, assuming that the bonds were sold to provide a market rate of return to the investor. (Round PV factor to 4 decimal places.) b-1. Assume instead...

On January 1, 2019, Calvert Company issues 10%, $200,000 face value bonds for $207,259.79, a price...

On January 1, 2019, Calvert Company issues 10%, $200,000 face value bonds for $207,259.79, a price to yield 8%. The bonds mature on December 31, 2020. Interest is paid semiannually on June 30 and December 31. Required: 1. Prepare a bond interest expense and premium amortization schedule using the straight-line method. 2. Prepare a bond interest expense and premium amortization schedule using the effective interest method. 3. Prepare the journal entries to record the interest payments on June 30, 2019,...

On January 1, MOA, Inc. issued and sold a $200,000, 5.5%, 20-year bond payable, and received...

On January 1, MOA, Inc. issued and sold a $200,000, 5.5%, 20-year bond payable, and received proceeds of $250,000. Interest is payable each June 30 and December 31. The company uses the straight-line method to amortize the premium. The journal entry to record the first interest payment is: Debit Bond Interest Expense $14,210; credit Cash $14,210. Debit Bond Interest Expense $11,000; credit Cash $11,000. Debit Bond Interest Expense $6,750; credit to Premium on Bonds Payable $1,250; credit Cash $5,500. Debit...