Question

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

1.		Tamarisk Corp. issued $20,300,000 par value 11% 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.		Vaughn Company issued $20,300,000 par value 11% 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 $5.
3.		Suppose Sepracor, Inc. called its convertible debt in 2017. Assume the following related to the transaction. The 12%, $10,500,000 par value bonds were converted into 1,050,000 shares of $1 par value common stock on July 1, 2017. On July 1, there was $53,000 of unamortized discount applicable to the bonds, and the company paid an additional $75,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.

Answer 1

Date	Account title and Explanation	Debit	Credit
1	Cash	20097000
	Discount on Bonds Payable	203,000
	Bond Payable		20,300,000
	(To record issue of bond)
2	Cash	19894000
	Discount on Bonds Payable	1,421,000
	Bond Payable		20,300,000
	Paid-in Capital—Stock Warrants		1015000
	(To record issue of bonds)
3	Debt Conversion Expense	75000
	Bonds Payable	10,500,000
	Discount on Bonds Payable		53000
	Common Stock		1050000
	Paid-in Capital in Excess of Par		9,397,000
	Cash		75000