Question

For each of the unrelated transactions described below, present the entries required to record each transaction. 1. Sarasota Corp. issued $18,800,000 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. Ivanhoe Company issued $18,800,000 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 $4. 3. Suppose Sepracor, Inc. called its convertible debt in 2017. Assume the following related to the transaction. The 12%, $10,100,000 par value bonds were converted into 1,010,000 shares of $1 par value common stock on July 1, 2017. On July 1, there was $52,000 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

Answer 1.

Account title	Debit	Credit
Cash [18,800,000 *0.99]	18,612,000
Discount on bonds payable [18,800,000 - 18,612,000]	188,000
Bonds payable		18,800,000

Answer 2.

Account title	Debit	Credit
Cash [18,800,000 *0.98]	18,424,000
Discount on bonds payable [18,800,000 + 752000 - 18,424,000]	1,128,000
Bonds payable		18,800,000
Paid in capital share warrants [18,800,000 / 100 * 4 ]		752000

Answer 3.

Account title	Debit	Credit
Debt conversion expense	75000
Bonds payable	10,100,000
Discount on bonds payable		52000
Common stock		1,010,000
Paid in capital in excess of common stock [balancing figure]		9,038,000
Cash		75000