On January 1, 2024, when its $30 par value common stock was selling for $80 per share, Crane Corp. issued $10,100,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into shares of the corporation's common stock. The debentures were issued for $10,908,000. The present value of the bond payment the time of issuance was $8,585,000, and the corporation believes the difference between the present value and the amount pai attributable to the conversion feature. On January 1, 2025, the corporation's $30 par value common stock was split 2 for 1, and conversion rate for the bonds was adjusted accordingly. On January 1, 2026, when the corporation's $15 par value common stoc selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The corporation use straight-line method for amortizing any bond discounts or premiums. (a) Prepare the journal entry to record the original issuance of the convertible debentures. (List debit entry before credit entry. Cred account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for th account titles and enter O for the amounts.)
On January 1, 2024, when its $30 par value common stock was selling for $80 per share, Crane Corp. issued $10,100,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into shares of the corporation's common stock. The debentures were issued for $10,908,000. The present value of the bond payment the time of issuance was $8,585,000, and the corporation believes the difference between the present value and the amount pai attributable to the conversion feature. On January 1, 2025, the corporation's $30 par value common stock was split 2 for 1, and conversion rate for the bonds was adjusted accordingly. On January 1, 2026, when the corporation's $15 par value common stoc selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The corporation use straight-line method for amortizing any bond discounts or premiums. (a) Prepare the journal entry to record the original issuance of the convertible debentures. (List debit entry before credit entry. Cred account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for th account titles and enter O for the amounts.)
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Haresh
Transcribed Image Text:On January 1, 2024, when its $30 par value common stock was selling for $80 per share, Crane Corp. issued $10,100,000 of 8%
convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five
shares of the corporation's common stock. The debentures were issued for $10,908,000. The present value of the bond payments at
the time of issuance was $8,585,000, and the corporation believes the difference between the present value and the amount paid is
attributable to the conversion feature. On January 1, 2025, the corporation's $30 par value common stock was split 2 for 1, and the
conversion rate for the bonds was adjusted accordingly. On January 1, 2026, when the corporation's $15 par value common stock was
selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The corporation uses the
straight-line method for amortizing any bond discounts or premiums.
(a) Prepare the journal entry to record the original issuance of the convertible debentures. (List debit entry before credit entry. 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 O for the amounts.)
Account Titles and Explanation
Cash
Bonds Payable
Premium on Bonds Payable
Account Titles and Explanation
Bonds Payable
Premium on Bonds Payable
Common Stock
Debit
Paid-in Capital in Excess of Par - Common Stock
10908000
(b) Prepare the journal entry to record the exercise of the conversion option, using the book value method. (List all debit entries before
credit entries. 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 O for the amounts.)
Debit
Credit
3030000
10100000
808000
Credit
I
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