Login Registrieren

Warning: foreach() argument must be of type array|object, bool given in /var/www/html/web/app/themes/studypress-core-theme/template-parts/header/mobile-offcanvas.php on line 20

Chapter 16: Q9IFRS (page 896)

Question: Archer Company issued \(4,000,000 par value, 7% convertible bonds at 99 for cash. The net present value of the debt without the conversion feature is \)3,800,000. Prepare the journal entry to record the issuance of the convertible bonds.

Short Answer

Expert verified

Answer

Cash will be debited by $3,960,000 and bonds payable will be credited $3,800,000 and premium on bonds payable is $160,000.

Step by step solution

01

Explanation of premium on bonds payable-

The amount over the face value of bonds that are issued are known as premium on bonds payable.

02

Journals

Date	Accounts & Explanations	Debit	Credit
	Cash ($4,000,000*99%)	$3,960,000
	Bonds Payable		$3,800,000
	Premium on bonds payable		$160,000
	Being issuance of the convertible bonds recorded

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Question: . Mae Jong Corp. issues \(1,000,000 of 10% bonds payable which may be converted into 10,000 shares of \)2 par value ordinary shares. The market rate of interest on similar bonds is 12%. Interest is payable annually on December 31, and the bonds were issued for total proceeds of $1,000,000. In accounting for these bonds, Mae Jong Corp. will:

(a) first assign a value to the equity component, then determine the liability component.

(b) assign no value to the equity component since the conversion privilege is not separable from the bond.

(c) first assign a value to the liability component based on the face amount of the bond.

(d) use the “with-and-without” method to value the compound instrument.

Bedard Corporation reported net income of \(300,000 in 2017 and had 200,000 shares of common stock outstanding throughout the year. Also outstanding all year were 45,000 options to purchase common stock at \)10 per share. The average market price of the stock during the year was $15. Compute diluted earnings per share.

(Conversion of Bonds) Aubrey Inc. issued \(4,000,000 of 10%, 10-year convertible bonds on June 1, 2017, at 98 plus accrued interest. The bonds were dated April 1, 2017, with interest payable April 1 and October 1. Bond discount is amortized semi-annually on a straight-line basis.On April 1, 2018, \)1,500,000 of these bonds were converted into 30,000 shares of $20 par value common stock. Accrued interest was paid in cash at the time of conversion.

(a) Prepare the entry to record the interest expense at October 1, 2017. Assume that accrued interest payable was credited when the bonds were issued. (Round to nearest dollar.)

(b) Prepare the entry(ies) to record the conversion on April 1, 2018. (Book value method is used.) Assume that the entry to record amortization of the bond discount and interest payment has been made

(EPS with Convertible Bonds and Preferred Stock) The Simon Corporation issued 10-year, \(5,000,000 par, 7% callable convertible subordinated debentures on January 2, 2017. The bonds have a par value of \)1,000, with interest payable annually. The current conversion ratio is 14:1, and in 2 years it will increase to 18:1. At the date of issue, the bonds were sold at 98. Bond discount is amortized on a straight-line basis. Simon’s effective tax was 35%. Net income in 2017 was $9,500,000, and the company had 2,000,000 shares outstanding during the entire year.

Instructions

(a) Prepare a schedule to compute both basic and diluted earnings per share.

(b) Discuss how the schedule would differ if the security was convertible preferred stock

What is meant by a dilutive security?

See all solutions

Recommended explanations on Business Studies Textbooks

Managers

Read Explanation

Influences On Business

Read Explanation

Strategic Analysis

Read Explanation

Financial Performance

Read Explanation

Business Operations

Read Explanation

Nature of Business

Read Explanation

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free