On January 1, 2015, when its $30 par value common stock was selling for $80 per share, a corporation issued $10 million of 10% convertible debentures due in 10 years. The conversion option allowed the holder of each $")00 bond to convert it into six shares of the corporation's $30 par value common stock. The debentures were issued for $11 million. At the time of issuance, the present value of the bond payments 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, 2016, the corporation's $30 par value common stock was split 3 for 1. On January 1, 2017, when the corporation's $10 par value common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums. Required: 1. Prepare the journal entry to record the original issuance of the convertible debentures. 2. Prepare the journal entry to record the exercise of the conversion option, using the book value method.
On January 1, 2015, when its $30 par value common stock was selling for $80 per share, a corporation issued $10 million of 10% convertible debentures due in 10 years. The conversion option allowed the holder of each $")00 bond to convert it into six shares of the corporation's $30 par value common stock. The debentures were issued for $11 million. At the time of issuance, the present value of the bond payments 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, 2016, the corporation's $30 par value common stock was split 3 for 1. On January 1, 2017, when the corporation's $10 par value common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums. Required: 1. Prepare the journal entry to record the original issuance of the convertible debentures. 2. Prepare the journal entry to record the exercise of the conversion option, using the book value method.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Convertible Bonds
Instructions
Chart of Accounts
General Journal
Instructions
On January 1, 2015, when its $30 par value common stock was selling for $80 per share, a corporation issued $10 million of 10% convertible debentures due in 10
years. The conversion option allowed the holder of each
b00 bond to convert it into six shares of the corporation's $30 par value common stock. The debentures
were issued for $11 million. At the time of issuance, the present value of the bond payments 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, 2016, the corporation's $30 par value common stock was split 3 for
1. On January 1, 2017, when the corporation's $10 par value common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised
their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums.
Required:
1. Prepare the journal entry to record the original issuance of the convertible debentures.
2. Prepare the journal entry to record the exercise of the conversion option, using the book value method.
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