1.

Coyle SA issued

10,000,000 par value 10% convertible bonds

at 99. If the bonds had not been convertible, the company's

investment banker determines that they would have been sold

at 95.

2.

Lambert AG issued

10,000,000 par value 10% bonds at 98.

One share warrant was issued with each

100 par value bond.

At the time of issuance, the warrants were selling for

4. The

net present value of the bonds without the warrants was

9,600,000.

3.

Sepracor, AG called its convertible debt in 2019. Assume the

following related to the transaction. The 11%,

10,000,000 par

value bonds were converted into 1,000,000 shares of

1 par

value ordinary shares on July 1, 2019. The carrying amount of

the debt on July 1 was

9,700,000. The Share Premium

Conversion Equity account had a balance of

200,000, 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.

E16.8

(LO2)

(Issuance of Bonds with Share Warrants)

Sun Ltd. has

decided to raise additional capital by issuing HK$175,000 face value

of bonds with a coupon rate of 10%. In discussions with investment

bankers, it was determined that to help the sale of the bonds, share

warrants should be issued at the rate of one warrant for each

HK$100 bond sold. The fair value of the bonds without the warrants

is HK$136,000, and the estimated value of the warrants is

HK$18,000. The proceeds upon issuance of the bonds and warrants

was HK$150,000.

Instructions

a.

What entry should be made at the time of the issuance of the

bonds and warrants?

b.

If the warrants were non-detachable, would the entries be

different? Discuss.