Question

Exercise 16-1 For each of the unrelated transactions described below, present the entries required to record each transaction.

1. Shamrock Corp. issued $21,400,000 par value 9% convertible bonds at 98. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95.

2. Bridgeport Company issued $21,400,000 par value 9% bonds at 97. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $5.

3. Suppose Sepracor, Inc. called its convertible debt in 2017. Assume the following related to the transaction. The 10%, $10,000,000 par value bonds were converted into 1,000,000 shares of $1 par value common stock on July 1, 2017. On July 1, there was $51,000 of unamortized discount applicable to the bonds, and the company paid an additional $68,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.

Answer 1

1. Shamrock Corp. issued $21,400,000 par value 9% convertible bonds at 98. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95.

Cash (21,400,000*98%)	20,972,000
Discount on Bond Payable	428,000
Bond Payable		21,400,000

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2. Bridgeport Company issued $21,400,000 par value 9% bonds at 97. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $5.

Cash (21,400,000*0.97)	20,758,000
Discount on Bond Payable	1,712,000
Bond Payable		21,400,000
Additonal Paid in Capital-Stock Warrant (21,400,000*5/100)		1,070,000

Value of the Bond and Warrant	$20,972,000
Less: Warrant Value	1,070,000
Value of Bond	$19,902,000

_______________________________________________________________________

3.

Suppose Separator, Inc. called its convertible debt in 2017. Assume the following related to the transaction. The 10%, $10,000,000 par value bonds were converted into 1,000,000 shares of $1 par value common stock on July 1, 2017. On July 1, there was $51,000 of unamortized discount applicable to the bonds, and the company paid an additional $68,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.

Bond Payable	10,000,000
Debt Conversion Expense	68,000
Discount on Bonds Payable		51,000
Common Stock		1,000,000
APIC-Common Stock (10,000,000+68000-51000-1,000,000-68000)		8,949,000
Cash		68,000