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.)

1. On August 1, 2018, 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 $800,000 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 $4,000,000, at 97. The investment banker indicates that if the bonds had not been convertible they would have sold at 94. 3. Gomez Company issues $9,000,000 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 $8,883,000 and the value of the warrants is $567,000. The bonds with the warrants sold at 101.

Explanation / Answer

1 Bonds Payable 8000000 Premium on Bonds Payable 800000         Common Stock 6400000 =320000*20         Paid-in Capital in Excess of Par 2400000 2 Cash 3880000 =4000000*0.97 Discount on Bonds Payable 120000        Bonds Payable 4000000 3 Cash 9090000 =9000000*1.01 Discount on Bonds Payable 455400        Bonds Payable 9000000        Paid in capital -Stock Warants 545400 =9090000/(8883000+567000)*567000

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