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AccountingIntermediate Accounting: Reporting And Analysis3rd Edition

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Chapter 14, Problem 19E
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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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Problem 19GI
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Problem 24GI
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Problem 18E
Problem 19E
Problem 20E
Problem 21E
Problem 22E
Problem 23E
Problem 24E
Problem 25E
Problem 26E
Problem 27E
Problem 28E
Problem 29E
Problem 30E
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Problem 5C
Problem 6C
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Problem 9C
Problem 10C
Problem 11C
Problem 12C
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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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On January 1, 2019, Conroe Corporation sold $500,000 of 13% bonds at 107. Each $1,000 bond carried 20 warrants, and each warrant allowed the holder to acquire one share of $10 par value common stock for $20 per share. Subsequent to the issuance of the securities, the bonds were quoted at 102 ex rights, and the warrants were quoted at $4 each.

Required:

  1. 1. Determine the value to be assigned to the bonds and the warrants and prepare the journal entry to record the issuance of the convertible bonds.
  2. 2. Assume that 4,000 warrants are subsequently exercised on July 1, 2021. Prepare the journal entry for the issuance of the common stock.

1.

To determine

Calculate the value to be assigned to the bonds and the warrants, and prepare journal entry to record the issuance of convertible bonds.

Explanation

Detachable Stock Purchase Warrants:

A stock warrant gives the buyer an option to acquire a declared number of shares of common stock at a specific option price within a particular time period.

Calculate the value assigned to the bonds and the warrants.

Calculate the value assigned to the bonds.

Value assigned to bonds) = Market value of bonds without warrants(Market value of bonds without warrants + Market value of warrants) × Issuance price= ([102 ex rights × 10 Warrants] ×  $500,000 $1,000 )([102 ex rights × 10 Warrants] ×  $500,000 $1,000 ) + ($4 × $500,000 $1,000 × 20 Warrants) × $535,000= ($1,020 × 500)($1,020 × 500) + ($4 × 500 × 20) × $535,000= $496,091

Therefore, value assigned to bonds amount is $496,091.

Calculate the value assigned to the warrants

2.

To determine

Prepare journal entry to record issuance of common stock; assume 4,000 warrants are subsequently exercised on 1st July 2021.

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Ch-14 P-1GICh-14 P-2GICh-14 P-3GICh-14 P-4GICh-14 P-5GICh-14 P-6GICh-14 P-7GICh-14 P-8GICh-14 P-9GICh-14 P-10GI
Ch-14 P-11GICh-14 P-12GICh-14 P-13GICh-14 P-14GICh-14 P-15GICh-14 P-16GICh-14 P-17GICh-14 P-18GICh-14 P-19GICh-14 P-20GICh-14 P-21GICh-14 P-22GICh-14 P-23GICh-14 P-24GICh-14 P-25GICh-14 P-26GICh-14 P-27GICh-14 P-28GICh-14 P-1MCCh-14 P-2MCCh-14 P-3MCCh-14 P-4MCCh-14 P-5MCCh-14 P-6MCCh-14 P-7MCCh-14 P-8MCCh-14 P-9MCCh-14 P-10MCCh-14 P-11MCCh-14 P-12MCCh-14 P-1RECh-14 P-2RECh-14 P-3RECh-14 P-4RECh-14 P-5RECh-14 P-6RECh-14 P-7RECh-14 P-8RECh-14 P-9RECh-14 P-10RECh-14 P-11RECh-14 P-12RECh-14 P-13RECh-14 P-14RECh-14 P-15RECh-14 P-1ECh-14 P-2ECh-14 P-3ECh-14 P-4ECh-14 P-5ECh-14 P-6ECh-14 P-7ECh-14 P-8ECh-14 P-9ECh-14 P-10ECh-14 P-11ECh-14 P-12ECh-14 P-13ECh-14 P-14ECh-14 P-15ECh-14 P-16ECh-14 P-17ECh-14 P-18ECh-14 P-19ECh-14 P-20ECh-14 P-21ECh-14 P-22ECh-14 P-23ECh-14 P-24ECh-14 P-25ECh-14 P-26ECh-14 P-27ECh-14 P-28ECh-14 P-29ECh-14 P-30ECh-14 P-31ECh-14 P-1PCh-14 P-2PCh-14 P-3PCh-14 P-4PCh-14 P-5PCh-14 P-6PCh-14 P-7PCh-14 P-8PCh-14 P-9PCh-14 P-10PCh-14 P-11PCh-14 P-12PCh-14 P-13PCh-14 P-14PCh-14 P-15PCh-14 P-16PCh-14 P-1CCh-14 P-2CCh-14 P-3CCh-14 P-4CCh-14 P-5CCh-14 P-6CCh-14 P-7CCh-14 P-8CCh-14 P-9CCh-14 P-10CCh-14 P-11CCh-14 P-12CCh-14 P-13C

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