Chapter 16 Exercise for Intermediate Accounting [Kieso]

E16-1 (Issuance and Conversion of Bonds) For each of the unrelated transactions described below, present the entry(ies) required to record each transaction.

1. Coyle Corp. issued $10,000,000 par value 10% convertible bonds at 99. If the bonds had not been convertible, the company’s investment banker estimates they would have been sold at 95. Expenses of issuing the bonds were $70,000.

DR. Cash [$10,000,000x.99]…............9,900,000

DR. Discount on Bonds Payable..... 100,000

CR. Bonds Payable.......................... 10,000,000

To record issuance of convertible bonds at 99.

DR. Unamortized Bond Issue Costs.......70,000

CR. Cash......................................... 70,000

To record expenses for issuing the bonds.

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

DR. Cash [$10,000,000x.98]…...............9,500,000

DR. Discount on Bonds Payable............. 900,000

CR. Bonds Payable............................... 10,000,000

CR. Paid-In Capital-Stock Warrants...... 400,000

[10,000,000/100; 100,000x4]

To record the issue of stocks and stock warrants.

3. Sepracor, Inc. called its convertible debt in 2012. 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, 2012. 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.

DR. Debt Conversion Expense................ 75,000

DR. Bonds Payable................................. 10,000,000...