Answered: On April 1, 2018, Western… | bartleby

On April 1, 2018, Western Communications, Inc., issued 12% bonds, dated March 1, 2018, with face amount of$30 million. The bonds sold for $29.3 million and mature on February 28, 2021. Interest is paid semiannuallyon August 31 and February 28. Stillworth Corporation acquired $30,000 of the bonds as a long-term investment.The fiscal years of both firms end December 31, and both firms use the straight-line method.Required:1. Prepare the journal entries to record (a) issuance of the bonds by Western and (b) Stillworth’s investment onApril 1, 2018.2. Prepare the journal entries by both firms to record all subsequent events related to the bonds throughmaturity.

Intermediate Accounting: Reporting And Analysis

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter13: Investments And Long-term Receivables

Section: Chapter Questions

Problem 1RE

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On April 1, 2018, Western Communications, Inc., issued 12% bonds, dated March 1, 2018, with face amount of
$30 million. The bonds sold for $29.3 million and mature on February 28, 2021. Interest is paid semiannually
on August 31 and February 28. Stillworth Corporation acquired $30,000 of the bonds as a long-term investment.
The fiscal years of both firms end December 31, and both firms use the straight-line method.
Required:
1. Prepare the journal entries to record (a) issuance of the bonds by Western and (b) Stillworth’s investment on
April 1, 2018.
2. Prepare the journal entries by both firms to record all subsequent events related to the bonds through
maturity.

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Tama Companys capital structure consists of common stock and convertible bonds. At the beginning of 2019, Tama had 15,000 shares of common stock outstanding; an additional 4,500 shares were issued on May 4. The 7% convertible bonds have a face value of 80,000 and were issued in 2016 at par. Each 1,000 bond is convertible into 25 shares of common stock; to date, none of the bonds have been converted. During 2019, the company earned net income of 79,200 and was subject to an income tax rate of 30%. Required: Compute the 2019 diluted earnings per share.
Chung Inc. issued $50,000 of 3-year bonds on January 1, 2018, with a stated rate of 4% and a market rate of 4%. The bonds paid interest semi-annually on June 30 and Dec. 31. How much money did the company receive when the bonds were issued? The bonds would be quoted at what rate?
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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