For each of the unrelated transactions described below, present the entry(ies) r
ID: 2498635 • Letter: F
Question
For each of the unrelated transactions described below, present the entry(ies) required to record the bond transactions. On August 1, 2011, Lane Corporation called its 10% convertible bonds for conversion. The $8,000,000 par bonds were converted into 320,000 shares of $20 par common stock. On August 1, there was $700,000 of unamortized premium applicable to the bonds. The fair market value of the common stock was $20 per share. Ignore all interest payments. Gomez Company issues $5,000,000 of bonds with a coupon rate of 8%. To help the sale, detachable stock warrants are issued at the rate of ten warrants for each $1,000 bond sold. It is estimated that the value of the bonds without the warrants is $4,935,000 and the value of the warrants is $315,000. The bonds with the warrants sold at 101.
Explanation / Answer
Answer: Journal entry:
Bonds Payable A/C Dr. $ 8,000,000
Premium on Bonds Payable A/C Dr. $ 700,000
To Common Stock A/C $ 6400,000
To Paid-in Capital in Excess of Par. $23 00,000
Cash A/C Dr. $ 5050,000
Discount on Bonds Payable A/C Dr. $ 253000
To Bonds Payable A/C $ 5,000,000
To Paid-in Capital—Stock Warrants A/C $303,000
($315,000 ÷ $5250,000 × $5050,000 = $303000)
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