Question

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

1.		Sweet Corp. issued $19,100,000 par value 9% convertible bonds at 97. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95.
2.		Pharoah Company issued $19,100,000 par value 9% bonds at 96. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $4.
3.		Suppose Sepracor, Inc. called its convertible debt in 2017. Assume the following related to the transaction. The 10%, $10,900,000 par value bonds were converted into 1,090,000 shares of $1 par value common stock on July 1, 2017. On July 1, there was $57,000 of unamortized discount applicable to the bonds, and the company paid an additional $81,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.

No	Account Titles	Debit	Credit
1.
2.
3.

Answer 1

Journal entry
Transaction	ACCOUNT TITLES AND EXPLANATIONS	DEBIT ($)	CREDIT ($)
1	Cash (19,100,000/100*95)	18,145,000.00
	Discount on Bond Payable (19,100,000-18,145,000)	955,000.00
	Bond Payable		19,100,000.00
	(To record issuance of bond)
2	Cash (19,100,000/100*96)	18,336,000.00
	Discount on Bond Payable (Balancing figure)	1,528,000.00
	Bond Payable		19,100,000.00
	Additional Paid in Capital-Stock Warrant (19,100,000/100*4)		764,000.00
	(To record issuance of bond and One detachable stock purchase warrant)
3	Bonds Payable	10,900,000.00
	Debt Conversion Expense	81,000.00
	Discount on Bond Payable		57,000.00
	Common Stock		1,090,000.00
	Paid-in Capital in Excess of Par (10,900,000-57,000-1,090,000)		9,753,000.00
	Cash (Balancing Figure)		81,000.00
	(To record entry for conversion using the book value method)