Question 1

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

1. Flex Inc. decides to issue convertible bonds instead of ordinary shares. The company issued 8,000,000 par value 10% convertible bonds at 98. The investment banker indicates that if the bonds had not been convertible, they would have been sold at 92.

2. Vaguard Company issues $5,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable share warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the fair value of the bonds without the warrants is $4,873,870. The bonds with the warrants sold at 101.

3. Longmore Inc. called its convertible debt in 2010. Assume the following related to the transaction: The 11% 5,000,000 par value bonds were converted into 500,000 shares of 1 par value ordinary shares on July 1, 2010. The carrying amount of the debt on July 1 was 4,800,000. The Share PremiumConversion Equity account had a balance of 1,000,000 and the company paid an additional 35,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.