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Required Provide the entry to record the original issuance of convertible debentures. b. Provide the entry to record the exercise of the conversion option, using the book value method. a.

Required Provide the entry to record the original issuance of convertible debentures. b. Provide the entry to record the exercise of the conversion option, using the book value method. a.

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, 2020, when its $30 par value common stock was selling for $80 per share, Ancil Corporation is- sued $5,000,000 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 corporation's $30 par value common stock. The deben- tures were issued for $5,500,000. The present value of the bond payments at the time of issuance was $4,250,000, and the corporation believes that the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2022, when the corporation's common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options. For convenience, assume that the corporation uses the straight-line interest method for amortizing any bond discount or premium. Required a. Provide the entry to record the original issuance of convertible debentures. b. Provide the entry to record the exercise of the conversion option, using the book value method. a. January 1, 2020 Cash $5,500,000 Bonds Payable $5,000,000 Premium on Bonds Payable $500,000 b. January 1, 2022 Bonds Payable (S5M x 40%) $2,000,000 Premium on BP (400k x 40%) S160,000 Common Stock (2M/1k x 5 x $30) $300,000 Addt'1 Paid-in Capital $1,860,000
Transcribed Image Text:On January 1, 2020, when its $30 par value common stock was selling for $80 per share, Ancil Corporation is- sued $5,000,000 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 corporation's $30 par value common stock. The deben- tures were issued for $5,500,000. The present value of the bond payments at the time of issuance was $4,250,000, and the corporation believes that the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2022, when the corporation's common stock was selling for $90 per share, holders of 40% of the convertible debentures exercised their conversion options. For convenience, assume that the corporation uses the straight-line interest method for amortizing any bond discount or premium. Required a. Provide the entry to record the original issuance of convertible debentures. b. Provide the entry to record the exercise of the conversion option, using the book value method. a. January 1, 2020 Cash $5,500,000 Bonds Payable $5,000,000 Premium on Bonds Payable $500,000 b. January 1, 2022 Bonds Payable (S5M x 40%) $2,000,000 Premium on BP (400k x 40%) S160,000 Common Stock (2M/1k x 5 x $30) $300,000 Addt'1 Paid-in Capital $1,860,000
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