Sh2 On January 1, 2023, when the fair value of its common shares was $73 per share, Sheridan Corp. issued $11 million of 9% convertibledebentures due in 20 years. The conversion option allowed the holder of each $1.000 bond to convert the bond into 4 common shares.The debentures were issued for $11.9 million. The bond payment's present value at the time of issuance was $9.4 million and thecorporation believes the difference between the present value and the amount paid is attributable to the conversion feature. OnJanuary 1, 2024, the corporation's common shares were split 3 for 1, and the conversion rate for the bonds was adjusted accordingly.On January 1, 2025, when the fair value of the corporation's common shares was $123 per share, holders of 25% of the convertibledebentures exercised their conversion option. Sheridan applies ASPE and uses the straight-line method for amortizing any bonddiscounts or premiums. Assume, instead, that Sheridan decides to retire the bonds early, on January 1, 2025, by paying cash of $3,037,500 to thebondholders. On that date, the fair value of a similar bond without the conversion feature is $870 per bond. Prepare the journalentry using the book value method. (Credit account titles are automatically indented when the amount is entered. Do not indentmanually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before creditentries.)Account Titles and ExplanationBonds PayableContributed Surplus Conversion RightsLoss on Retirement of BondsRetained EarningsCashDebit2390000625000125005000Credit3037500

Conversion of Bonds It is the method of converting a bond into shares. It is dependent on…

bondholders. On that date, the fair value of a similar bond without the conversion feature is $870 per bond. Prepare the journal entry using the book value method. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter O for the amounts. List all debit entries before credit entries.) Account Titles and Explanation Bonds Payable Contributed Surplus-Conversion Rights Loss on Retirement of Bonds Retained Earnings Cash Debit 2390000 625000 12500 5000 Credit 3037500

bondholders. On that date, the fair value of a similar bond without the conversion feature is $870 per bond. Prepare the journal entry using the book value method. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry for the account titles and enter O for the amounts. List all debit entries before credit entries.) Account Titles and Explanation Bonds Payable Contributed Surplus-Conversion Rights Loss on Retirement of Bonds Retained Earnings Cash Debit 2390000 625000 12500 5000 Credit 3037500

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter7: Financial Activities

Section: Chapter Questions

Problem 10QE

See similar textbooks

Similar questions

On July 2, 2018, McGraw Corporation issued 500,000 of convertible bonds. Each 1,000 bond could be converted into 20 shares of the companys 5 par value stock. On July 3, 2020, when the bonds had an unamortized discount of 7,400 and the market value of the McGraw shares was 52 per share, all the bonds were converted into common stock. Required: 1. Prepare the journal entry to record the conversion of the bonds under (a) the book value method and (b) the market value method. 2. Compute the companys debt-to-equity ratio (total liabilities divided by total shareholders equity, as described in Chapter 6) under each alternative. Assume the companys other liabilities are 2 million and shareholders equity before the conversion is 3 million. 3. Assume the company uses IFRS and issued the bonds for 487,500 on July 2, 2018. On this date, it determined that the fair value of each bond was 930 and the fair value of the conversion option was 45 per bond. Prepare the journal entry to record the issuance of the bonds.
Tama Companys capital structure consists of common stock and convertible bonds. At the beginning of 2019, Tama had 15,000 shares of common stock outstanding; an additional 4,500 shares were issued on May 4. The 7% convertible bonds have a face value of 80,000 and were issued in 2016 at par. Each 1,000 bond is convertible into 25 shares of common stock; to date, none of the bonds have been converted. During 2019, the company earned net income of 79,200 and was subject to an income tax rate of 30%. Required: Compute the 2019 diluted earnings per share.
Waseca Company had 5 convertible securities outstanding during all of 2019. It paid the appropriate interest (and amortized any related premium or discount using the straight line method) and dividends on each security during 2019. Each of the convertible securities is described in the following table: Additional data: Net income for 2019 totaled 119,460. The weighted average number of common shares outstanding during 2019 was 40,000 shares. No share options or warrants arc outstanding. The effective corporate income tax rate is 30%. Required: 1. Prepare a schedule that lists the impact of the assumed conversion of each convertible security on diluted earnings per share. 2. Prepare a ranking of the order in which each of the convertible securities should be included in diluted earnings per share. 3. Compute basic earnings per share. 4. Compute diluted earnings per share. 5. Indicate the amount(s) of the earnings per share that Waseca would report on its 2019 income statement.
Starmount Inc. sold bonds with a $50,000 face value, 12% interest, and 10-year term at $48,000. What is the total amount of interest expense over the life of the bonds?
Florence Inc. issued 8,000, 5-year convertible bonds of $2,000 each for $4,000,000 at the beginning of 2021. The bonds have a stated rate of interest of 9% and interest is payable annually. Each bond can be convertible into 100 shares with a par value of $10. The market rate of similar nonconvertible debt is 10%. Determine the fair value of the equity component using the “with-and-without” method is a. $3,848,288 b. $2,483,600 c. $1,365,688 d. $151,712
On July 1, 2023, Pharoah Ltd., which follows ASPE, issued 1,000 convertible, five-year, $1,000 bonds. Each bond is convertible into 20 common shares at the bondholder's option. On the date of issuance, the bond's conversion rights were valued at $51,000. On July 1, 2026, the bonds had a carrying value on Pharoah's books of $969,000, and the fair market value of the bonds without the convertible option was $973,000. (a) Assume all the bondholders voluntarily decided to convert their bonds to common shares on July 1, 2026. Prepare the journal entry to record the conversion. (Credit account titles are automatically indented when the 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. List all debit entries before credit entries.) Account Titles and Explanation Bonds Payable Common Shares Contributed Surplus - Conversion Rights Debit Credit
Sunland Inc. issued $3 million of 10-year, 9% convertible bonds on June 1, 2023, at 98 plus accrued interest. The bonds were dated April 1, 2023, with interest payable April 1 and October 1. Bond discount is amortized semi-annually. Bonds without conversion privileges would have sold at 97 plus accrued interest. On April 1, 2024, $0.75 million of these bonds were converted into 15,000 common shares. Accrued interest was paid in cash at the time of conversion. Assume that the company follows IFRS. (a) Your answer is partially correct. Prepare the entry to record the issuance of the convertible bonds on June 1, 2023. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. Round answers to O decimal places, e.g. 5,275. List all debit entries before credit entries.) Date Account Titles and Explanation June 1, 2023 Cash Bonds Payable Interest Payable…
On July 1, 2020, Tuttle Company had bonds payable outstanding with a face value of $350,000 and a book value of $345,000. The interest on these bonds was paid on June 30. When these bonds were issued, each $1,000 bond was convertible into 20 shares of $10 par common stock. To induce conversion, on June 15, 2020, the terms were changed so that each bond was convertible into 22 shares of common stock if the conversion was made within 30 days. All the bonds were converted on July 1, 2020, when the market price of the common stock was $48 per share. Required: Next Level Using the book value method, record the conversion of the bonds on July 1, 2020.
Accounting On January 1, 2020, when the fair value of its common shares was $80 per share, Pharoah Corp. issued $10 million of 9% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into 5 common shares. The debentures were issued for $10.7 million. The bond payment's present value at the time of issuance was $8.5 million and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2021, the corporation's common shares were split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2022, when the fair value of the corporation's common shares was $124 per share, holders of 40% of the convertible debentures exercised their conversion option. Pharoah Corp. applies ASPE, and uses the straight-line method for amortizing any bond discounts or premiums. Prepare the entry to record the original issuance of…
On July 1, 2020, Tuttle Company had bonds payable outstanding with a face value of $100,000 and a book value of $93,000. The interest on these bonds was paid on June 30. When these bonds were issued, each $1,000 bond was convertible into 25 shares of $10 par common stock. To induce conversion, on June 15, 2020, the terms were changed so that each bond was convertible into 28 shares of common stock if the conversion was made within 30 days. All the bonds were converted on July 1, 2020, when the market price of the common stock was $42 per share. Required: Next Level Using the book value method, record the conversion of the bonds on July 1, 2020. PAGE 1 GENERAL JOURNAL DATE ACCOUNT TITLE POST. REF. DEBIT CREDIT 1 2 3 4 5
On July 1, 2023, Sandhill Ltd., which follows ASPE, issued 1,000 convertible, five-year, $1,000 bonds. Each bond is convertible into 20 common shares at the bondholder's option. On the date of issuance, the bond's conversion rights were valued at $50,000. On July 1, 2026, the bonds had a carrying value on Sandhill's books of $971,000, and the fair market value of the bonds without the convertible option was $975,000. (a) Assume all the bondholders voluntarily decided to convert their bonds to common shares on July 1, 2026. Prepare the journal entry to record the conversion. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts. List all debit entries before credit entries.) Account Titles and Explanation Debit Credit
Sandhill Ltd. sold 10-year, 5% convertible bonds with face value $1,590,000. The bonds pay interest December 31 each year. Sandhill follows ASPE. Each bond was convertible into 530 Sandhill common shares. The sale resulted in a value for the convertible option of $279,000. On January 2, 2024, Sandhill offered a cash payment of $33,000 to bondholders if they would convert their bonds into common shares. All of the bondholders agreed. At the time, the market value of the bonds was $1,379,000 and the carrying value on Sandhill's books was $1,362,000. Prepare the journal entry to record the early retirement of the bonds. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. List all debit entries before credit entries. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Account Titles and Explanation Debit Credit