E16-1 (LO 1,2) Issuance and Conversion of Bonds

For each of the unrelated transactions described below, present the entry(ies) required to record each transaction.

1.

Grand Corp. issued convertible bonds.

Par value of bonds issued

$ 20,000,000

Issue price

99

Stated rate

10%

Estimate by investment banker of the price at which the bonds could have been sold if they had not been convertible

95

Debit

Credit

2.

Hoosier Company issued bonds. One detachable stock warrant was issued with each bond.

Par value of bonds

$ 20,000,000

Issue price

98

Stated rate

10%

Par value of each bond

$ 100

Selling price of each warrant at time of issuance

$ 4

Debit

Credit

Calculation of value of bonds:

3.

Suppose Sepracor, Inc. called its convertible debt in 2017. The company records the conversion using the book value method. Assume the following related to the transaction.

Conversion of 11%, $10,000,000 par value bonds on July 1, 2017 into:

Shares of $1 par value common stock

1,000,000

Balance of unamortized discount on July 1 applicble to the bonds

$ 55,000

Additional payment to induce conversion of bonds

$ 75,000