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Chapter 16: Q1BE. (page 874)

Archer Inc. issued $4,000,000 par value, 7% convertible bonds at 99 for cash. If the bonds had not included the conversion feature, they would have sold for 95. Prepare the journal entry to record the issuance of the bonds.

Short Answer

Expert verified

Cash account will be debited with $3,960,000; Discount on Bond Payable will be debited with $40,000, and Bonds Payable will be credited with $4,000,000.

Step by step solution

01

The information provided in the question

We have:

Issued $4,000,000 par value

Rate of bond 7%

Convertible bonds at $99 for cash

Selling price $95

02

Journal Entry

Date

Description

DEBIT

CREDIT

Cash

$3,960,000

Discount on Bonds Payable

$40,000

Bonds Payable

$4,000,000

Being issuance of bond

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Most popular questions from this chapter

EPS with Contingent Issuance Agreement) Winsor Inc. recently purchased Holiday Corp., a large midwestern home painting corporation. One of the terms of the merger was that if Holiday鈥檚 income for 2017 was \(110,000 or more, 10,000 additional shares would be issued to Holiday鈥檚 stockholders in 2018. Holiday鈥檚 income for 2016 was \)120,000.

Instructions

(a) Would the contingent shares have to be considered in Winsor鈥檚 2016 earnings per share computations?

(b) Assume the same facts, except that the 10,000 shares are contingent on Holiday鈥檚 achieving a net income of $130,000 in 2017. Would the contingent shares have to be considered in Winsor鈥檚 earnings per share computations for 2016?

(Weighted-Average Number of Shares) Newton Inc. uses a calendar year for financial reporting. The company is authorized to issue 9,000,000 shares of $10 par common stock. At no time has Newton issued any potentially dilutive securities. Listed below is a summary of Newton鈥檚 common stock activities.

1. Number of common shares issued and outstanding at December 31, 2015 2,000,000

2. Shares issued as a result of a 10% stock dividend on September 30, 2016 200,000

3. Shares issued for cash on March 31, 2017 2,000,000Number of common shares issued and outstanding at December 31, 2017 4,200,000

4. A 2-for-1 stock split of Newton鈥檚 common stock took place on March 31, 2018

Instructions

(a) Compute the weighted-average number of common shares used in computing earnings per common share for 2016 on the 2017 comparative income statement.

(b) Compute the weighted-average number of common shares used in computing earnings per common share for 2017 on the 2017 comparative income statement.

(c) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2017 on the 2018 comparative income statement.

(d) Compute the weighted-average number of common shares to be used in computing earnings per common share for 2018 on the 2018 comparative income statement

(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 \(20,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, the company鈥檚 investment banker estimates they would have been sold at 95.

2. Hoosier Company issued \)20,000,000 par value 10% bonds at 98. One detachable stock purchase warrant was issued with each \(100 par value bond. At the time of issuance, the warrants were selling for \)4.

3. Suppose Sepracor, Inc. called its convertible debt in 2017. Assume the following related to the transaction. The 11%, \(10,000,000 par value bonds were converted into 1,000,000 shares of \)1 par value common stock on July 1, 2017. On July 1, there was \(55,000 of unamortized discount applicable to the bonds, and the company paid an additional \)75,000 to the bondholders to induce conversion of all the bonds. The company records the conversion using the book value method.

What are stock rights? How does the issuing company account for them?

Rockland Corporation earned net income of \(300,000 in 2017 and had 100,000 shares of common stock outstanding throughout the year. Also outstanding all year was \)800,000 of 9% bonds, which are convertible into 16,000 shares of common. Rockland鈥檚 tax rate is 40%. Compute Rockland鈥檚 2017 diluted earnings per share.
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