Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Exercise 16-4 On January 1, 2016, when its $30 par value common stock was selling for $80 per share, Carla Corp. issued $12,000,000 of 8%

Exercise 16-4

On January 1, 2016, when its $30 par value common stock was selling for $80 per share, Carla Corp. issued $12,000,000 of 8% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into five shares of the corporations common stock. The debentures were issued for $12,960,000. The present value of the bond payments at the time of issuance was $10,200,000, and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2017, the corporations $30 par value common stock was split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2018, when the corporations $15 par value common stock was selling for $135 per share, holders of 30% of the convertible debentures exercised their conversion options. The corporation uses the straight-line method for amortizing any bond discounts or premiums. (a) Prepare the entry to record the original issuance of the convertible debentures. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation Debit Credit

(b) Prepare the entry to record the exercise of the conversion option, using the book value method. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Account Titles and Explanation Debit Credit

Click if you would like to Show Work for this question: Open Show Work

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Why CISOs Fail Security Audit And Leadership Series

Authors: Barak Engel

2nd Edition

1032299258, 978-1032299259

More Books

Students also viewed these Accounting questions