Question

For each of the unrelated transactions described beliw present the entries rewuired to record each transaction.

1. Pharoah Corp issued $21400000 par value 9% convertible bonds at 98. If the bonds had not been convertible the companys investment banker estimates they would have been sold at 95.

2. Novak Company issued $21400000 par value 9% bonds at 97. One detachable stock purchase warrant was issued with each $100 par value bond. At time of issuance the warrants were selling for $5.

3. Suppose Sepracor, Inc. called its convertible debt in 2017. Assume the following related to the transaction. The 10% $10000000 par value bonds were converted into 1000000 shares of $1 par value common stock on July 1, 2017. On July 1, there was $51000 of unamortized discount applicable to the bonds and the company paid an additional $68000 to the bondholders to induce conversion of all bonds. The company records the conversion using the book value method.

Answer 1

The answer for above problem is explained below.