At the beginning of the current year, ABC Corporation issued 6,000, 5-year bonds, face value 1,000 each at 105. The bonds has a conversion privilege that provides for an exchange of a 1,000 bond for 20 shares of capital, par 50. Without such conversion privilege, the bonds would only sell at 98. Prepare the entries in connection with the issuance of the bonds and the conversion of the bonds at the end of the current year. U :=

At the beginning of the current year, ABC Corporation issued 6,000, 5-year bonds, face value 1,000 each at 105. The bonds has a conversion privilege that provides for an exchange of a 1,000 bond for 20 shares of capital, par 50. Without such conversion privilege, the bonds would only sell at 98. Prepare the entries in connection with the issuance of the bonds and the conversion of the bonds at the end of the current year. U :=

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter13: Long-term Liabilities

Section: Chapter Questions

Problem 7EA: On Jan. 1, Year 1, Foxcroft Inc. issued 100 bonds with a face value of $1,000 for $104,000. The...

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On July 2, 2018, McGraw Corporation issued 500,000 of convertible bonds. Each 1,000 bond could be converted into 20 shares of the companys 5 par value stock. On July 3, 2020, when the bonds had an unamortized discount of 7,400 and the market value of the McGraw shares was 52 per share, all the bonds were converted into common stock. Required: 1. Prepare the journal entry to record the conversion of the bonds under (a) the book value method and (b) the market value method. 2. Compute the companys debt-to-equity ratio (total liabilities divided by total shareholders equity, as described in Chapter 6) under each alternative. Assume the companys other liabilities are 2 million and shareholders equity before the conversion is 3 million. 3. Assume the company uses IFRS and issued the bonds for 487,500 on July 2, 2018. On this date, it determined that the fair value of each bond was 930 and the fair value of the conversion option was 45 per bond. Prepare the journal entry to record the issuance of the bonds.
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