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Chapter 16: Q2BE. (page 874)

Petrenko Corporation has outstanding 2,000 \(1,000 bonds, each convertible into 50 shares of \)10 par value common stock. The bonds are converted on December 31, 2017, when the unamortized discount is \(30,000 and the market price of the stock is \)21 per share. Record the conversion using the book value approach.

Short Answer

Expert verified

Bonds payable will be debited with $2,000,000 and discount on bonds payable; common stock;Paid-in Capital in Excess of Par鈥� Common Stock will be credited with $30,000; $1,000,000; $970,000, respectively.

Step by step solution

01

The information provided in the question

Bonds outstanding $2,000,000 (2000* $1,000)

Unamortized discount $30,000

Convertible into 50 shares of $10 par value

02

Journal Entry

Date

Description

DEBIT

CREDIT

Bonds Payable

$2,000,000

Discount on Bonds Payable

$30,000

Common Stock (2,000 X 50 X $10)

$1,000,000

Paid-in Capital in Excess of Par鈥� Common Stock

$970,000

Being Bonds are converted into common stock

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Most popular questions from this chapter

(Conversion of Bonds) Aubrey Inc. issued \(4,000,000 of 10%, 10-year convertible bonds on June 1, 2017, at 98 plus accrued interest. The bonds were dated April 1, 2017, with interest payable April 1 and October 1. Bond discount is amortized semi-annually on a straight-line basis.On April 1, 2018, \)1,500,000 of these bonds were converted into 30,000 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.

(a) Prepare the entry to record the interest expense at October 1, 2017. Assume that accrued interest payable was credited when the bonds were issued. (Round to nearest dollar.)

(b) Prepare the entry(ies) to record the conversion on April 1, 2018. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made

(Accounting for Restricted Stock) Tweedie Company issues 10,000 shares of restricted stock to its CFO, Mary Tokar, on January 1, 2017. The stock has a fair value of \(500,000 on this date. The service period related to this restricted stock is 5 years. Vesting occurs if Tokar stays with the company until December 31, 2021. The par value of the stock is \)10. At December31, 2017, the fair value of the stock is $450,000.

Instructions

(a) Prepare the journal entries to record the restricted stock on January 1, 2017 (the date of grant), and December 31, 2018.

(b) On July 25, 2021, Tokar leaves the company. Prepare the journal entry (if any) to account for this forfeiture

Question: (Conversion of Bonds) On January 1, 2017, Gottlieb Corporation issued \(4,000,000 of 10-year, 8% convertible debentures at 102. Interest is to be paid semi-annually on June 30 and December 31. Each \)1,000 debenture can be converted into eight shares of Gottlieb Corporation \(100 par value common stock after December 31, 2018. On January 1, 2019, \)400,000 of debentures are converted into common stock, which is then selling at \(110. An additional \)400,000 of debentures are converted on March 31, 2019. The market price of the common stock is then $115. Accrued interest at March 31 will be paid on the next interest date. Bond premium is amortized on a straight-line basis.

Make the necessary journal entries for:

(a) December 31, 2018. (c) March 31, 2019.

(b) January 1, 2019. (d) June 30, 2019.

Record the conversions using the book value method

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

(EPS with Convertible Bonds and Preferred Stock) On January 1, 2017, Crocker Company issued 10-year, \(2,000,000 face value, 6% bonds, at par. Each \)1,000 bond is convertible into 15 shares of Crocker common stock. Crocker鈥檚 net income in 2017 was \(300,000, and its tax rate was 40%. The company had 100,000 shares of common stock outstanding throughout 2017. None of the bonds were converted in 2017.

Instructions

(a) Compute diluted earnings per share for 2017.

(b) Compute diluted earnings per share for 2017, assuming the same facts as above, except that \)1,000,000 of 6% convertible preferred stock was issued instead of the bonds. Each $100 preferred share is convertible into 5 shares of Crocker common stock.
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