Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

On January 1, 2020, when the fair value of its common shares was $85 per share, Carla Vista Corp. issued $10 million of 7% convertible

On January 1, 2020, when the fair value of its common shares was $85 per share, Carla Vista Corp. issued $10 million of 7% convertible debentures due in 20 years. The conversion option allowed the holder of each $1,000 bond to convert the bond into 6 common shares. The debentures were issued for $10.5 million. The bond payments present value at the time of issuance was $8.3 million and the corporation believes the difference between the present value and the amount paid is attributable to the conversion feature. On January 1, 2021, the corporations common shares were split 2 for 1, and the conversion rate for the bonds was adjusted accordingly. On January 1, 2022, when the fair value of the corporations common shares was $149 per share, holders of 25% of the convertible debentures exercised their conversion option. Carla Vista Corp. applies ASPE, and uses the straight-line method for amortizing any bond discounts or premiums.

Assume, instead, that Carla Vista Corp. decides to retire the bonds early, on January 1, 2022, by paying cash of $2,765,000 to the bondholders. On that date, the fair value of a similar bond without the conversion feature is $870 per bond. Prepare the journal entry using the book value method. (Credit account titles are automatically indented when the amount is entered. Do not indent manually.)

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

Strategic Market Management

Authors: David A. Aaker

5th Edition

0471177431, 9780471177432

More Books

Students also viewed these Accounting questions

Question

=+b) Is this a prospective or retrospective study? Explain.

Answered: 1 week ago

Question

Identify ways that country culture influences global business.

Answered: 1 week ago

Question

Define human resource ethics.

Answered: 1 week ago

Question

Describe the human resource management profession.

Answered: 1 week ago