Question

For each of the unrelated transactions described below, present the entries required to record each transaction.

1. Buffalo Corp. issued $18,700,000 par value 9% convertible bonds at 99. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95.

2. Carla Company issued $18,700,000 par value 9% bonds at 98. One detachable stock purchase warrant was issued with each $100 par value bond. At the time of issuance, the warrants were selling for $4.

3. Suppose Sepracor, Inc. called its convertible debt in 2020. Assume the following related to the transaction. The 10%, $9,400,000 par value bonds were converted into 940,000 shares of $1 par value common stock on July 1, 2020. On July 1, there was $54,000 of unamortized discount applicable to the bonds, and the company paid an additional $71,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.

Answer 1