For each of the unrelated transactions described below, present the entry requir

Question

For each of the unrelated transactions described below, present the entry required to record the bond transactions. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 5,275.)

No.

Account Titles and Explanation

Debit

Credit

1.

2.

3.

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1. On August 1, 2015, Lane Corporation called its 10% convertible bonds for conversion. The $6,700,000 par bonds were converted into 268,000 shares of $20 par common stock. On August 1, there was $670,000 of unamortized premium applicable to the bonds. The fair value of the common stock was $20 per share. Ignore all interest payments. 2. Packard, Inc. decides to issue convertible bonds instead of common stock. The company issues 10% convertible bonds, par $2,700,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94. 3. Gomez Company issues $7,900,000 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 $7,797,000 and the value of the warrants is $499,000. The bonds with the warrants sold at 101.

Explanation / Answer

Journal Entries to record bond transactions (Amounts in $)

No. Account Titles and Explanation Debit Credit 1 Bonds Payable 6,700,000 Premium on Bonds Payable 670,000 Profit on conversion of bonds (Bal. fig.) ($6,700,000+$670,000-$5,360,000) 2,010,000 Common Stock (268,000 shares*$20 par) 5,360,000 2 Cash ($2,700,000*97%) 2,619,000 Discount on bonds payable ($2,700,000*3%) 81,000 Bonds Payable (par value) 2,700,000 3 Cash ($7,900,000*101%) 7,979,000 Discount on Bonds Payable (Bal. fig.) ($7,900,000+$499,000-$7,979,000) 420,000 Bonds Payable 7,900,000 Paid in Capital-Stock Warrants (value of warrants) 499,000

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