Question

Exercise 16-1 For each of the unrelated transactions described below, present the entries required to record each transaction. 1. Grand Corp. issued $20,277,000 par value 11% convertible bonds at 99. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95. Expenses of issuing the bonds were $76,400. 2. Hoosier Company issued $20,277,000 par value 11% 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 $4. 3. Suppose Sepracor, Inc. called its convertible debt in 2014. Assume the following related to the transaction: The 12%, $10,315,000 par value bonds were converted into 1,031,500 shares of $1 par value common stock on July 1, 2014. On July 1, there was $61,100 of unamortized discount applicable to the bonds, and the company paid an additional $80,700 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.

Answer 1

1. Grand Corp. issued $20,277,000 par value 11% convertible bonds at 99. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95. Expenses of issuing the bonds were $76,400.

Particulars	Debit (Amount in $)	Credit (Amount in $)
Cash	20,074,230
Discount on Bonds Payable	202,770
To 11% convertible Bond Payable		20,277,000
Unamortized Bond Issue Expenses	76,400
To cash		76,400

2. Hoosier Company issued $20,277,000 par value 11% 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 $4.

Particulars	Debit (Amount in $)	Credit (Amount in $)
Cash	19,871,460
Discount on Bonds Payable	1,216,620
To 11% convertible Bond Payable		20,277,000
To Paid-in Capital—Stock Warrants		811,080

3. Suppose Sepracor, Inc. called its convertible debt in 2014. Assume the following related to the transaction: The 12%, $10,315,000 par value bonds were converted into 1,031,500 shares of $1 par value common stock on July 1, 2014. On July 1, there was $61,100 of unamortized discount applicable to the bonds, and the company paid an additional $80,700 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.

Particulars	Debit (Amount in $)	Credit (Amount in $)
Debt Conversion Expense	80,700
12% convertible Bond Payable	10,315,000
To Discount on Bonds Payable		61,100
To common stock		1,031,500
To Securities Premium on common stock		9,222,400
To cash		80,700