Question

1. Bonita Corporation issued 2,000 shares of $10 par value common stock upon conversion of 1,000 shares of $50 par value preferred stock. The preferred stock was originally issued at $65 per share. The common stock is trading at $24 per share at the time of conversion.

Record the conversion of the preferred stock. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation	Debit	Credit

2. Ayayai Corporation issued 2,100 $1,000 bonds at 103. Each bond was issued with one detachable stock warrant. After issuance, the bonds were selling in the market at 98, and the warrants had a market price of $41.

Use the proportional method to record the issuance of the bonds and warrants. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round intermediate calculations to 5 decimal places, e.g. 1.24687 and final answers to 0 decimal places, e.g. 5,125.)

Account Titles and Explanation	Debit	Credit

Answer 1

Requirement:1

Account Titles and Explanation	Debit	Credit
Preferred Stock [1000*50]	$             50,000
Paid-In-Capital in Excess of Par-Preferred Stock [1000*15]	$             15,000
Common Stock [2000*10]		$            20,000
Paid-In-Capital in Excess of Par-Common Stock		$            45,000
(To record preferred stock conversion)

Requirement:2

Proportional Method: Detachable
Account Titles and Explanation	Debit	Credit
Cash	$       2,163,000
Discount on Bonds Payable	$             23,859
Bonds Payable		$      2,100,000
Paid-In-Capital-Stock Warrants		$            86,859
(To record bond and warrant issue)

Working:

	No.Of Units(a)	Warrants per Bond(b)	Total Units(c=a*b)	Amount per unit(d)	Total (c*d)	Percent%
Bonds	2100		2100	$                        980	$   2,058,000	95.98433%
Warrants	2100	1	2100	$                           41	$         86,100	4.01567%
Total Fair Market Value					$   2,144,100	100%
Allocation:	Bonds	Warrants
Issue Price	$ 2,163,000	$ 2,163,000		Bond Face Value	$   2,100,000
Allocation %	95.98433%	4.01567%		Allocated FMV	$ (2,076,141)
Total	$ 2,076,141	$        86,859		Discount	$         23,859