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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
Do not give image format
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
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 1 images
Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education