INTERMEDIATE ACCOUNTING(LL)-W/2 ACCESS
9th Edition
ISBN: 9781260180657
Author: SPICELAND
Publisher: MCG
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Textbook Question
Chapter 14, Problem 14.26E
Convertible bonds; induced conversion
• LO14–5
On January 1, 2018, Madison Products issued $40 million of 6%, 10-year convertible bonds at a net price of $40.8 million. Madison recently issued similar, but nonconvertible, bonds at 99 (that is, 99% of face amount). The bonds pay interest on June 30 and December 31. Each $1,000 bond is convertible into 30 shares of Madison’s no par common stock. Madison records interest by the straight-line method.
On June 1, 2020, Madison notified bondholders of its intent to call the bonds at face value plus a 1% call premium on July 1, 2020. By June 30, all bondholders had chosen to convert their bonds into shares as of the interest payment date. On June 30, Madison paid the semiannual interest and issued the requisite number of shares for the bonds being converted.
Required:
1. Prepare the
2. Prepare the journal entry for the June 30, 2018, interest payment.
3. Prepare the journal entries for the June 30, 2020, interest payment by Madison and the conversion of the bonds (book value method).
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Exercise 10.9 (Algo) Accounting for Bonds Issued at a Premium: Issuance, Interest Payments, and
Retirement (LO10-5, LO10-6)
Xonic Corporation issued $8.5 million of 20-year, 8 percent bonds on April 1, 2021, at 102. Interest is paid on March 31 and September
30 of each year, and all of the bonds in the issue mature on March 31, 2041 Xonic's fiscal year ends on December 31. Prepare the
following journal entries.
a. April 1, 2021, to record the issuance of the bonds.
b. September 30, 2021, to pay interest and to amortize the bond premium.
c. March 31, 2041, to pay interest, amortize the bond premium, and retire the bonds at maturity (make two separate entries). Assume
an adjusting entry was made on December 31, 2040, to recognize interest from October 1 to December 31.
d. What is the effect of amortizing the bond premium on (1) annual net income and (2) annual net cash flow from operating activities.
(ignore possible income tax effects.)
(If no entry is required for a transaction/event,…
2:36
On January 1, 2019, XYC Company issued P6,000,000 of its 8%, 6 year bonds at P110.
Interest is payable every June 30 and December 31. Each P1,000 bond is convertible
into 5 ordinary shares of P100 par value. The prevailing market rate of interest for
similar debt without the conversion option is 10%.
On January 1, 2021, one-third of the bonds were retired for P2,100,000. On this date,
the market price of the share was P120 and the prevailing rate of interest on similar
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On July 1, 2021, one-half of the remaining holders of the convertible bonds exercised
their conversion privilege. On this date, the market price of the share was P140 and the
prevailing rate of interest on similar debt instrument was 8% without the conversion
option.
1. How much is the equity component arising from the bond issuance?
2. How much is the gain (loss) on the retirement?
3. How much is the net increase (decrease) in the total shareholder' equity as a…
Q#9
On June 30, 2021, Singleton Computers issued 5% stated rate bonds with a face amount of $280 million. The bonds mature on June 30, 2036 (15 years). The market rate of interest for similar bond issues was 4% (2.0% semiannual rate). Interest is paid semiannually (2.5%) on June 30 and December 31, beginning on December 31, 2021. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)Required:1. Determine the price of the bonds on June 30, 2021.2. Calculate the interest expense Singleton reports in 2021 for these bonds using the effective interest method.
1.
Table values are based on:
n =
i =
Cash Flow
Amount
Present Value
Interest
Principal
Price of bonds
Chapter 14 Solutions
INTERMEDIATE ACCOUNTING(LL)-W/2 ACCESS
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