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On January 1, 20X1, when Its $30 par value common stock was selling for $80 per share, Glerach Corporation Issued $10 million of 4% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the company's $30 par value common stock. Cash settlement upon conversion is not permitted. The debentures were Issued for $10 million. Without the conversion feature, the bonds would have been issued for $8.5 million. On January 1, 20X3, the company's $30 par value common stock was split three for one. On January 1, 20X4, when the company's $10 par value common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options. Required: 1. Following U.S. GAAP, prepare a journal entry to record the original Issuance of the convertible debentures. 2. How much Interest expense would the company recognize on the convertible debentures in 20X1? 3. Prepare a Journal entry to record the exercise of the conversion option using the book value method. 4. Prepare the entry to record the exercise of the rion ontl

On January 1, 20X1, when Its $30 par value common stock was selling for $80 per share, Glerach Corporation Issued $10 million of 4% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the company's $30 par value common stock. Cash settlement upon conversion is not permitted. The debentures were Issued for $10 million. Without the conversion feature, the bonds would have been issued for $8.5 million. On January 1, 20X3, the company's $30 par value common stock was split three for one. On January 1, 20X4, when the company's $10 par value common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options. Required: 1. Following U.S. GAAP, prepare a journal entry to record the original Issuance of the convertible debentures. 2. How much Interest expense would the company recognize on the convertible debentures in 20X1? 3. Prepare a Journal entry to record the exercise of the conversion option using the book value method. 4. Prepare the entry to record the exercise of the rion ontl

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 20X1, when Its $30 par value common stock was selling for $80 per share, Glerach Corporation Issued $10 million of 4% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the company's $30 par value common stock. Cash settlement upon conversion is not permitted. The debentures were Issued for $10 million. Without the conversion feature, the bonds would have been issued for $8.5 million. On January 1, 20X3, the company's $30 par value common stock was split three for one. On January 1, 20X4, when the company's $10 par value common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options. Required: 1. Following U.S. GAAP, prepare a journal entry to record the original Issuance of the convertible debentures. 2. How much Interest expense would the company recognize on the convertible debentures in 20X1? 3. Prepare a Journal entry to record the exercise of the conversion option using the book value method. 4. Prepare the entry to record the exercise of the conversion option using the market-value method. Complete this question by entering your answers in the tabs below. Req 1 No 1 2 3. Prepare a journal entry to record the exercise of the conversion option using the book value method. 4. Prepare the entry to record the exercise of the conversion option using the market-value method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars rather than in millions.) Reg 2 Transaction 1 2 Req 3 and 4 Answer is not complete. Convertible bond payable Common stock, $10 par Additional paid-in capital Convertible bond payable Loss on debt conversion Common stock, $10 par Additional paid-in capital General Journal ✔ 0000 Debit 4,000,000 4,000,000 Credit Show less A
Transcribed Image Text:On January 1, 20X1, when Its $30 par value common stock was selling for $80 per share, Glerach Corporation Issued $10 million of 4% convertible debentures due in 10 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the company's $30 par value common stock. Cash settlement upon conversion is not permitted. The debentures were Issued for $10 million. Without the conversion feature, the bonds would have been issued for $8.5 million. On January 1, 20X3, the company's $30 par value common stock was split three for one. On January 1, 20X4, when the company's $10 par value common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options. Required: 1. Following U.S. GAAP, prepare a journal entry to record the original Issuance of the convertible debentures. 2. How much Interest expense would the company recognize on the convertible debentures in 20X1? 3. Prepare a Journal entry to record the exercise of the conversion option using the book value method. 4. Prepare the entry to record the exercise of the conversion option using the market-value method. Complete this question by entering your answers in the tabs below. Req 1 No 1 2 3. Prepare a journal entry to record the exercise of the conversion option using the book value method. 4. Prepare the entry to record the exercise of the conversion option using the market-value method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in whole dollars rather than in millions.) Reg 2 Transaction 1 2 Req 3 and 4 Answer is not complete. Convertible bond payable Common stock, $10 par Additional paid-in capital Convertible bond payable Loss on debt conversion Common stock, $10 par Additional paid-in capital General Journal ✔ 0000 Debit 4,000,000 4,000,000 Credit Show less A
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