Carribean Culture
1. Convertible bonds and stock warrants.
For each of the unrelated transactions described below, present the entry(ies) required to record the bond transactions.
1. On August 1, 2011, Lane Corporation called its 10% convertible bonds for conversion. The $8,000,000 par bonds were converted into 320,000 shares of $20 par common stock. On August 1, there was $700,000 of unamortized premium applicable to the bonds. The fair market value of the common stock was $20 per share. Ignore all interest payments.
DR
Bonds Payable 8,000,000
Premium on Bonds Payable 700,000
CR
Common Stock 6,400,000
APIC 2,300,000
2. Packard, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $3,000,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94.
DR
Cash 2,910,000
Bond Discount 90,000
CR
Bonds Payable 3,000,000
3. Gomez Company issues $5,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $4,935,000 and the value of the warrants is $315,000. The bonds with the warrants sold at 101.
DR
Cash 5,050,000
Discount on Bonds Payable 253,000 (5,000,000 – 4,747,000)
CR
Bonds Payable 5,000,000
PIC – Stock Warrants 303,000
2. Basic and diluted EPS.
Assume that the following data relative to Kane Company for 2010 is available:
Net Income $2,100,000
Transactions in Common Shares Change Cumulative
Jan. 1, 2010, Beginning number 700,000
Mar. 1, 2010, Purchase of treasury shares (60,000) 640,000
June 1, 2010, Stock split 2-1 640,000 1,280,000
Nov. 1, 2010, Issuance of shares 120,000 1,400,000
8% Cumulative Convertible Preferred Stock
Sold at par, convertible into
For each of the unrelated transactions described below, present the entry(ies) required to record the bond transactions.
1. On August 1, 2011, Lane Corporation called its 10% convertible bonds for conversion. The $8,000,000 par bonds were converted into 320,000 shares of $20 par common stock. On August 1, there was $700,000 of unamortized premium applicable to the bonds. The fair market value of the common stock was $20 per share. Ignore all interest payments.
DR
Bonds Payable 8,000,000
Premium on Bonds Payable 700,000
CR
Common Stock 6,400,000
APIC 2,300,000
2. Packard, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $3,000,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94.
DR
Cash 2,910,000
Bond Discount 90,000
CR
Bonds Payable 3,000,000
3. Gomez Company issues $5,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $4,935,000 and the value of the warrants is $315,000. The bonds with the warrants sold at 101.
DR
Cash 5,050,000
Discount on Bonds Payable 253,000 (5,000,000 – 4,747,000)
CR
Bonds Payable 5,000,000
PIC – Stock Warrants 303,000
2. Basic and diluted EPS.
Assume that the following data relative to Kane Company for 2010 is available:
Net Income $2,100,000
Transactions in Common Shares Change Cumulative
Jan. 1, 2010, Beginning number 700,000
Mar. 1, 2010, Purchase of treasury shares (60,000) 640,000
June 1, 2010, Stock split 2-1 640,000 1,280,000
Nov. 1, 2010, Issuance of shares 120,000 1,400,000
8% Cumulative Convertible Preferred Stock
Sold at par, convertible into