Question 1 For each of the unrelated transactions described below, present the e

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Question 1

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.)

1. On August 1, 2018, Lane Corporation called its 10% convertible bonds for conversion. The $6,600,000 par bonds were converted into 264,000 shares of $20 par common stock. On August 1, there was $660,000 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 $2,900,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94. 3. Gomez Company issues $7,800,000 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 $7,696,000 and the value of the warrants is $508,000. The bonds with the warrants sold at 101.

Explanation / Answer

1 Bonds payable 6600000 Premium on bonds payable 660000        Common Stock 5280000 =264000*20        Paid in capital in excess of par-Common Stock 1980000 2 Cash 2813000 =2900000*0.97 Discount on bonds payable 87000         Bonds payable 2900000 3 Cash 7878000 =7800000*1.01 Discount on bonds payable 409814         Bonds payable 7800000        Paid in capital- Stock Warrants 487814 =7878000/(7696000+508000)*508000

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